BHP Billiton full year results driven by the “Four Pillars”

BHP Billiton is scheduled to release full-year results on 19 August 2014. The company appears to have continued to build upon the strong foundation achieved in the interim period.

Source: Bloomberg

A recently released operational review by the company revealed a 9% increase in group production with annual output records achieved across 12 operations and four commodities.

The most significant production increase was that of iron ore which surged 20% over the full year period as Western Australian iron ore output far exceeded the initial guidance issue. Iron ore accounts for over 30% of revenue and 52.5% of the company’s underlying Earnings Before Interest and Tax (EBIT), as reported 2014H1.

The strong production increase combined with favourable exchange rate movements should more than offset the pressured price (particularly in the second half of the year) of the underlying commodity.

Copper production for the full year was in line with what BHP Billiton guided adding a 2% from the 2013 comparative. Copper's contribution to revenue amounts to just over a fifth of the group’s revenue and 23.3% of EBIT (as reported 2014H1).

Total petroleum production for the full year increased by 4% from the corresponding period. Petroleum contributes 21.1% to group EBIT, which if combined with Potash’s negative contribution to earnings, is reduced to 20.2%. Metallurgical Coal (2.4% of EBIT) and Energy Coal (1.7% of EBIT) witnessed increased production of 20% and 1% respectively.

With nickel, aluminium and manganese together accounting for around only 1% of the groups EBIT (nickel contribution to EBIT negative, manganese ore production contracting), these commodity operations become the likely focus of the company’s portfolio restructuring through demerging activities being considered currently. Along with the upcoming results investors will be hoping to hear further news around the future of these assets containing the aforementioned commodities.

The strong production performance from what the company deems as its 'Four Pillars' (copper, iron ore, coal and petroleum), especially from the company’s most meaningful contributor to earnings (iron ore), is expected to result in a much improved financial year against the backdrop of the 2013 comparative. Consensus estimates predict full year revenue to be $67.956 billion with the earnings per share value to be $2.54 (1.52GBP). A Thompsons Reuters poll of 26 surveyed analysts has an average rating of buy for BHP Billiton.

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