* Underlying profit of $7.76 bln v $6.9 bln consensus
* On track to cut debt to $25 bln, key for capital return
* Will consider big dividend hike in August
* Sees new iron ore supply outstripping demand growth
* Shares in Australia hit one-year high, outpace market
By Sonali Paul
MELBOURNE, Feb 18 Global miner BHP Billiton
topped market forecasts with a 31 percent rise
in first-half profit on Tuesday and hinted it may launch a share
buyback in August, despite giving a cautious outlook on Chinese
After saving an annualised $4.9 billion in costs, cutting
capital spending and trimming debt, the world's biggest miner
pointed to strong cash flows that would put it in a position to
consider a big dividend hike and capital return to investors.
BHP and its rivals have been deferring projects,
cost-cutting and selling assets for 18 months to satisfy
shareholder demands for a bigger share of spoils from the mining
boom. Rio Tinto surprised with a 15-percent
dividend hike last week.
Analysts welcomed improvements in BHP's coal business and
its previously struggling aluminium, manganese and nickel arm,
and said the company should be able to fund a buyback at the end
of the financial year, possibly before Rio Tinto.
"Without a doubt, there is definitely a probability that
they embark on additional capital management with the FY14
result," Deutsche Bank analyst Paul Young said.
BHP said it expected to generate strong free cash flow which
would help it pare net debt to about $25 billion by June 2014, a
level at which Chief Executive Andrew Mackenzie has said the
company would be willing to look at a capital return.
"If we deliver that level of indebtedness towards the end of
this financial year, I'll come back to you at the full year with
the authority of our board to talk about future capital
management that may be possible," Mackenzie told reporters.
BHP shares in Australia rose 2.3 percent to a one-year high
while shares in London were up almost 2 percent by 1241 GMT,
after hitting their highest in more than three months,
outperforming the mining sector.
Mackenzie, who took over as CEO in May last year, gave a
cautious outlook, saying Chinese steel output had started slow
this year at 730 million tonnes on an annualised basis and said
new iron ore supply from the likes of BHP and Rio would outstrip
demand growth, driving prices lower later in the year.
However he said BHP had more room to strip out costs to
insulate it from any market weakness, and highlighted that the
company had been able to grow returns at a time of flat to
slightly weaker commodity prices.
"We're just getting started and I think there's a lot more
to come," he said, without specifying any cost-cutting target
beyond $5.5 billion for the year to June 2014.
Unlike its peers, the company did not give a specific target
for capital expenditure beyond this financial year, when it
expects to spend about $16 billion.
Mackenzie said however the spend was likely to flatline for
a while at about $15 billion a year.
"I wouldn't want to be too specific on that because we are a
dynamic company. Things change. We think by doing that we can
operate a higher return portfolio rather than if we fix things,"
Other producers such as Rio Tinto and Glencore have offered
more detail to reassure investors that spending will not rise
rapidly as it has done in the industry over the past few years.
Underlying attributable profit rose to $7.76 billion for the
six months to December, up from $5.94 billion last time.
Forecasts were $6.925 billion and analysts said BHP beat that
partly on cost cutting and on a lower-than-expected tax rate.
Net debt fell to $27.1 billion, down $422 million from June
While some analysts suggested BHP may need to sell more
assets to pay down debt, Mackenzie said that was not the case.
"You can see from the strength of our cashflow that we don't
need the money," he said, when asked whether the company expects
any further major asset sales this year, after booking $2.2
billion worth of divestments in the first-half.
Profit from iron ore, its biggest business, rose 60 percent
on mine expansions, while petroleum earnings fell 16 percent,
disappointing analysts, and copper rose just 0.4 percent.
Its coal business posted a profit of $510 million, up from
breakeven a year earlier.
Mackenzie declined to comment on speculation the company was
considering exiting its thermal coal business or wanted to sell
its South African coal mines.
"There is no doubt that our energy coal business in South
Africa has had some challenges but the team is certainly working
on that and performing well," chief financial officer Graham
Kerr said in a news briefing in London.
BHP raised its interim dividend by 3.5 percent to $0.59 a
share, slightly below consensus but in line with its normal
practice of paying an interim dividend at the same level as the
final dividend from the year before.