BHP Billiton Ltd. (BHP) has reported strong interim results for fiscal 2011 with net income (excluding special items) of $10.5 billion, almost double from $6.1 billion in the first half of fiscal 2010. Earnings per ADR excluding special items also grew to $1.89 from $1.10 in the previous half.
Revenues increased 45.8% to $32.35 billion from $22.20 billion in the first half of fiscal 2010. Adjusted EBIT was $14.8 billion, an increase from $8.5 billion and EBITDA grew to $17.3 billion from $10.8 billion.
The increase is attributable to the gradual recovery in market demand as well as increase in the prices of commodities. In the second half of fiscal 2010, BHP switched from an old annual benchmark price to a quarterly pricing system, which increased the prices of commodities by a significant rate.
Net operating cash flows increased to $12.2 billion from $5.5 billion in the corresponding period of the previous year. This was primarily attributable to the favorable impact of the working capital adjustment.
Capital and exploration expenditure totaled $5.6 billion for the period. Expenditure on major growth projects was $4.3 billion, including $792 million on petroleum projects and $3.5 billion on minerals projects. Capital expenditure on sustaining and other items was $893 million. Exploration expenditure was $452 million, including $363 million, which was capitalized.
Financing cash flows include net debt repayments of $98 million and dividend payments of $2.5 billion. At the end of first half of fiscal 2011, BHP Billiton has a net cash position of $200 million after adjusting for debt of $3.3 billion at the end of fiscal 2010.
During the first half, BHP Billiton repurchased 6.8 million shares at an average cost of $37.23 for a total consideration of $4.2 billion. The company also initiated a $10 billion capital management program, which is likely to be completed by December 2011.
During the six months ended December 2010, BHP Billiton completed one project in energy coal and approved the Macedon gas project in Australia estimated to cost $1,050 million.
We believe that the ongoing industrialization in China, the largest iron-ore importer, will improve the demand and prices of its products in future. Fiscal 2010 bears evidence of the fact that both demand and prices improved due to strong growth in China and India.
BHP Billiton maintains a progressive dividend policy raises shareholder sentiments and confidence, which inspire our optimism about the stock. However, BHP Billiton is expected to suffer short term losses due to the heavy rains and floods in Australia.
Thus, we maintain our Neutral recommendation on the ADR. The ADR currently retains a Zacks #3 Rank, equivalent to a short-term Hold rating.
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