BHP profits tumble after commodity prices plunge

Image copyright BHP

Annual profits at BHP Billiton slid 86% despite slashing costs, as a collapse in Chinese demand for commodities hit the Anglo-Australian mining giant.

The company reported that net profit for the 12 months to 30 June was $1.91bn (£1.2bn), compared with $13.8bn a year earlier.

Underlying profits, which exclude one-off costs, fell 52% to $6.4bn - below analysts' expectations.

Capital expenditure will fall from $11bn in 2014-15 to $7bn by 2016-17.

After falling 9% in London on Monday, shares in BHP rose by 6.5% to £10.30 a share.

Lower forecasts

BHP has been cutting jobs and costs in a bid to counter the effects of sliding commodity prices.

Although this helped to some extent, chief executive Andrew Mackenzie said continuing economic reforms in China would mean more market volatility ahead.

"While we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, we have lowered our forecast of peak Chinese steel demand," he said.

However, Mr Mackenzie said that this would favour "low-cost producers with economies of scale" such as BHP.

The company maintained its final dividend at 62 cents a share.

Richard Hunter, head of equities at Hargreaves Lansdown, said: "While the numbers were fairly ugly reading, I think the thing that the market was most concerned about was that the dividend should be maintained, which it was."

During the year, BHP spun off non-core assets into a new independent company, South32, to help simplify its operations, which sent revenue down 22.2% to $52.2bn.

South32 now operates assets including aluminium, coal, nickel, manganese, silver, lead and zinc, leaving BHP to focus on its more profitable iron ore, copper, petroleum, coal and potash operations.

South32 reported a maiden net profit on Monday of $28m for the year to 30 June.

Earlier this month, fellow mining giant Rio Tinto posted an 82% slump in first-half net profit, with lower commodity prices also taking their toll.

BHP and Rio are two of the world's big four iron ore exporters.

More on this story