Profits: BHP’ Billiton's Lower Interim, Higher Dividend

No buyback, but BHP Billiton remembered shareholders and lifted dividend 20% after a 5.5% dip in first half profits.

And, as expected, BHP did not announce any new share buybacks following a $US10 billion buyback and $US17 billion in shale gas acquisitions last year, saving its cash for expansion projects in iron ore, coal, copper and potash.

BHP will pay a 55 USc fully franked dividend for the period on March 22, up 20% on the interim for the previous financial year when a payout of 46c a share was made.

But if the current strength of the Aussie dollar continues until March 22, shareholders might find themselves receiving around 51c Australian, around 40% less than the increase in US dollar terms.

A year ago the Aussie dollar was around parity with the greenback meaning the 46c a share interim was almost the same in Australian dollars.

The resources giant said yesterday the $US9.941 billion ($A9.3 billion) in net profit was lower because of a fall in lower commodity prices, lower output for some commodities (copper) and some production constraints.

Analysts had been expecting the world's biggest miner to post a net profit of about $US10 billion ($A9.36 billion) in the six months to December 31.

The result compares to BHP's $US10.5 billion ($A9.83 billion) net profit in the prior corresponding period.

It's the first time in two years the world's biggest miner posted a profit fall, and the shares dipped 32c, less than 1%, to $37.58.

After under-performing the market in 2011, BHP's shares had risen 11% up to Tuesday; nearly double the rise in the broader Australian market, on confidence in the US economic recovery and a soft landing in China.

Chief executive Marius Kloppers described the result as "robust" and a ''strong and predictable performance'' in comments accompanying the result.

BHP's result however was again boosted by a strong performance in iron ore (despite the sharp fall in prices for some of the half) but weighed down by weak results in aluminium and nickel.

(That's why there were cuts at the WA nickel business announced last month, while the company's aluminium business could find itself following diamonds down the exit path.)

"In the longer term, we expect the rate of growth in steelmaking raw materials demand, particularly in China, to decelerate as underlying economic growth rates revert to a more sustainable level," BHP directors commented yesterday.

The small profit fall came on the back of a 9.7% improvement in group revenues to a total of $US37.48 billion.

Sales rose even as prices for iron ore, copper and coal fell, and the company warned that markets would remain volatile because of Europe's woes and weak global growth.

The company said underlying EBITDA rose 8% to US$18.7 billion, while operating cash flow was a very sold $US12.3 billion.

Iron ore made up half of the group's earnings, and the company's petroleum business saw a jump in earnings thanks in part to a four-month contribution from Petrohawk, its biggest US gas acquisition.

Lower base metals prices cut $US673 million from earnings before interest and tax, and lower base metals sales, mainly associated with industrial action and lower grades at the group's Escondida copper mine in Chile, slashed another $US871 million.

Improved coking coal and iron ore prices both added $US927 million to revenue and the big winner was iron ore: iron volumes from the Pilbara mines also rose, boosting EBIT by $US1.24 billion.

Overall petroleum EBIT jumped by 38% to $US3.94 billion, iron ore EBIT rose 36% to $US7.9 billion - 60% of the EBIT total for the group - and base metals EBIT fell by 54% to $US1.64 billion.

In its now usual outlook for the world's economies and major commodities, BHP said it expected volatility in commodity markets to persist, due to the European sovereign debt crisis and weakness in manufacturing and construction sectors.

"However, we expect underlying demand growth rates to remain robust, so long as the macro-economic policy setting of the developing world retains a growth bias," BHP said in its statement.

Copper and iron ore prices were expected to be supported by compelling supply and demand fundamentals, while Chinese demand for metallurgical coal was also expected to remain strong, it said.

Crude oil pricing was expected to be influenced by geopolitical factors, BHP said.

The outlook for the aluminium, nickel and manganese alloy industries remained challenging and had led to significant margin compression for most producers, it added.

BHP said economic activity slowed in China and India in the first half of the financial year but the US and Japan showed stronger levels of growth, while the US and Japan are likely to post modest growth in the coming quarters.

And, China was expected to pursue moderate measures to support balanced economic growth, providing there were no large external shocks.

Indian inflation had started to slow, which, in time, was expected to increase the scope for the relaxation of monetary policy there, it said.

BHP said it expected a protracted recovery for the developed world, adding that the disorderly unwinding of European government debt was a key downside risk to its forecasts.

Despite these reservations, BHP is proceeding with its rapid expansion plan for the iron ore business (which includes the massive new port outside Port Hedland in WA) and is near approving the much bigger Olympic Dam project in South Australia.

The company has $US27 billion of new projects underway here and offshore, with more than $17 billion of that still to be spent.

Olympic Dam and the Port Headland outer port project will more than double that unspent amount if approval comes later this year for both projects.

Comment: A good result, given the pressures from the weather (in Australia in the first quarter for coal and iron ore), the slide in prices in the last quarter, including iron ore, lower ore grades at Escondida and the production lost because of industrial action, as well as the weakness for aluminium and nickel.

So far this half, copper prices are up more than 10%, oil prices are a touch lower in the US, but up 10% or more outside America.

Natural gas prices in the US are lower than a year ago, iron ore prices have recovered from the slide late last year, but are nowhere near as high as they were in the June half of 2011.

And coal prices are down compared with the end of 2011 and the first half of the same year.

But the company, while showing a bit more caution than a year or six months ago, is continuing its heavy spending in iron ore and oil and gas. That's the most important part of the result.

And the spending on gas in the US is the part of the strategy a problem for many analysts who wonder if it is the right direction given the price weakness.

As the next story shows, Rio Tinto is still on the same track as BHP.

Rio's full year result for 2011 later today, will show similar signs to BHP, a surging first half and a more subdued second six months of earnings.