BHP Billiton Ltd. (BHP) has reported results for fiscal 2010 with net income (excluding special items) of $12.5 billion, up 16.3% year over year from $10.7 billion in fiscal 2009. Earnings per ADR excluding special items also grew to $4.47 from $3.83 in the previous year. It surpassed the Zacks Consensus Estimate of $3.54 per ADR.
Revenues increased 5.2% to $52.80 billion from $50.2 billion in fiscal year 2009. Adjusted EBIT (earnings before interests and taxes) was $19.7 billion, an increase from $18.2 billion and EBITDA (earnings before interests, tax, depreciation and amortization) grew to $24.5 billion from $22.3 billion.
The increase is attributable to the 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 decreased to $17.9 billion from $18.9 billion in the previous year based on working capital adjustment. This was primarily attributable to the favorable impact of collection of trade receivables on prior-period cash flows.
Capital and exploration expenditure totaled $10,656 million for the period. Expenditure on major growth projects was $7,655 million, including $1,902 million on petroleum projects and $5,753 million on minerals projects. Capital expenditure on sustaining and other items was $1,668 million. Exploration expenditure was $1,333 million, including $303 million which has been capitalized.
Financing cash flows include net debt repayments of $485 million and dividend payments of $4,618 million. Net debt decreased to $3,308 million from US$7,915 million, a decrease from $7,915 million at the end of the first half of fiscal 2010 and $5,586 million as of 30 June 2009. Gearing ratio, ratio of net debt to net debt plus net assets, also dropped to 6.0% from 15.1% on December 31, 2009 and 12.1% on June 30, 2009. Further decrease is expected in the coming years based on the gradual recovery in economic conditions.
BHP Billiton has invested heavily and successfully delivered five growth projects including those in petroleum and iron ore in fiscal year 2010. Further, the company approved two major growth projects with a total budget of $695 million and made pre-commitments totaling $2,237 million to start the work on another four projects.
For future, BHP has 20 projects in hand for a total budget of $25 billion. The company is also looking for the proposed joint venture with Rio Tinto (RTP) in Pilbara. Moreover, the recent takeover offer of BHP Billiton for Canada ‘s Potash Corp. of Saskatchewan Inc. (POT), the world’s biggest fertilizer manufacturer, for $38.56 billion in total or $130 per share is also expected to materialize soon. However, on the offer being rejected by Potash, the company is now expected to up its offer price beyond $150 per share. Thus, over the longer term we maintain our Neutral recommendation. The stock currently retains a Zacks #4 Rank (short-term Sell rating).