BHP’s View Of The World

By Glenn Dyer | More Articles by Glenn Dyer

Here’s BHP Billiton’s view of the world,over the past half year and looking ahead. It is surprisingly optimistic, especially about the declining influence of the US economy, the sustainability of the China boom and the strength of commodity prices for at the ‘medium term’ as they put (the next three years).

There was no mention of global warming, carbon taxes or trading or climate change and the possible impact on demand for commodities. Perhaps it’s all a bit theoretical, especially in China.

At the end of the story is a table from the company’s presentation to analysts showing the contributions from the various customer groups. It’s impressive and a decade ago the contributions from stainless steel materials,base metals and coal would have accounted for much, if not all the group profit from all sources.

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Robust demand, strong product prices and solid production underpins today’s record result.

Our attributable profit of US$6.2 billion represents an increase of 41.3 per cent over the corresponding period and is the seventh consecutive record half year result.

The quality of our portfolio and the strong product demand are evident with seven of our nine Customer Sector Groups (CSGs) recording increases in underlying EBIT over the comparative period.

We achieved production records (from continuing operations) for five major and one minor commodity during the half year and ten of our assets set production records.

This reflects our key operating objective of delivering consistent, predictable and sustainable operating performance across all of our businesses.

Our Underlying EBIT of US$9.1 billion is an increase of 36.9 per cent over the first half of FY06.Underlying EBIT margins rose to 47.4 per cent, from 41.9 per cent in the corresponding period while return on Capital Employed increased from 31.2 per cent to 36.5 per cent.

The environment in which we operate continues to be challenging. However, our recruitment and procurement strategies that leverage off our scale and geographic diversity and our Business Excellence program, which is sourcing and replicating best practice from our extensive asset base, are contributing to a continued reduction in the rate of cost increase.

Our activities are becoming more geographically diverse and our Business Excellence program has graduated to its next level of maturity.

Investing in the future:

Our project pipeline continues to grow with a number of organic growth options progressing to the feasibility phase and the acquisition of the Genghis Khan oil field in the Gulf of Mexico.

We now have 29 projects in either execution or feasibility with an expected budget of US$17.5 billion.

The majority of our projects under development continue to track to schedule. Cost pressures resulting from the shortage of labour, equipment and other input costs remain, but recently reassessed projects remain on cost and schedule.

During the period production from the Spence copper cathode project in Chile commenced ahead of schedule while the Escondida Sulphide Leach (copper), Worsley DCP (alumina) and Rapid Growth 2 (iron ore) projects continued to ramp up to full capacity.

We are committed to creating value added options in our portfolio to provide the next generation of growth opportunities beyond our current project pipeline.

During the period we have opened corporate offices in Guinea and the Democratic Republic of Congo, building on our already significant exploration and project assessment activities in these countries.

We also entered into an exclusive agreement with Global Alumina relating to the development of an alumina refinery in Guinea and we announced the acquisition of the Genghis Khan oil field, which is adjacent to our Shenzi development.

We have a track record of sustainable long term partnerships that deliver in-country expansion and reinvestment bringing long term prosperity to all stakeholders, including local communities and the governments.

The quality of our assets and the diversity of our portfolio underpin the strength of our cash flow and continues to support our ability to both identify and invest in growth opportunities while continuing to deliver outstanding returns to shareholders.

The Board today declared an interim dividend of 20.0 US cents per share. This represents a 14.3 per cent increase over last year’s interim dividend of 17.5 US cents per share.

This is our tenth consecutive dividend increase and also means that today’s dividend has increased more than threefold since the interim dividend paid in 2002. We will continue with our progressive dividend policy, with further increases dependent upon the expectations for future investment opportunities and market conditions.

We are announcing today an increase of US$10 billion to the US$1.3 billion remaining from the capital initiative announced in August 2006. This amount will be returned to shareholders over the next 18 months through a series of share buy-backs.

Since August 2006 US$1.7 billion has been returned to shareholders through on-market purchases of 92,285,000 BHP Billiton Plc (Plc) shares (at an approximate price of US$18.23, being an 8.9 per cent discount to the price of our Limited stock).

We are commencing the first stage in this return immediately with an off-market buy-back of BHP Billiton Limited (Ltd) stock (see separate announcement).

This program will begin immediately with a targeted maximum size of around A$3.25 billion (US$2.5 billion). We expect the on-market buy-back of Plc shares will continue during the off-market process.

Today’s announcement brings the total capital management programs announced since August 2004 to US$17 billion. To date 388 million shares have been repurchased, representing approximately 6.6 per cent of the total shares on issue at an approximate price of US$14.11

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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