BHP

BHP has its lowest profit for five years | The Australian

BHP Billiton has delivered its lowest half-year profit in five years on falling demand and major asset write-downs.

And it warned that any revival in demand from China would not be sufficient to boost commodity markets.

While underlying pre-tax earnings rose 24 per cent year on year, impairments from depressed prices, taxes and the failed Ravensthorpe nickel operation slashed net profit by 57 per cent to $US2.68 billion ($4.18 billion), the lowest since 2004.

But BHP hoisted the interim dividend from US29c to US41c -- a result that is sweetened for local shareholders by the fall in the Australian dollar.

Analysts said the pre-tax profit of $US11.9 billion was in line with expectations and a decent performance in depressed markets.

However, it was still 18 per cent below that in the previous half and could be the last big underlying earnings number from the miner for some time.

The strong underlying earnings were driven largely by coking coal and iron ore, whose annually set prices have yet to befully exposed to the recent downturn in exchange-traded commodities.

Base metals and nickel lost money, while underlying profit for aluminium fell.

Chief executive Marius Kloppers gave his most downbeat public view yet of markets and their prospects, saying a recovery in China would not be enough to buoy global commodity markets.

"The outlook for the world economy, in the short as well as the medium term, remains weak and uncertain," Mr Kloppers said at a media briefing in Sydney.

When Mr Kloppers last addressed shareholders two months ago, he restricted his views to the short term, which he said was uncertain.

Now he says people are being too optimistic about the medium-term impact of the current downturn and the timing of a recovery.

"We, like all or most other people, did not see the speed or the dramatic nature of the downturn that occurred," he said, adding that it was unlike anything he or anybody else at the company had seen before.

There were some encouraging signs coming out of China, where iron ore demand was starting to pick up after a period of destocking, but this would not be enough to fix the situation.

"With only 30 to 35 per cent of absolute commodities demand, China alone cannot be relied on to support overall global commodities demand," he said.

"For global commodities demand to perform well, a synchronised improvement in both the OECD and China will be required."

BHP reported attributable profit before exceptional items of $US6.13 billion, up 2.2 per cent from a year earlier.

This was below analysts' expectations of close to $US7 billion, but this was due to a big tax hit caused partly by a weaker Australian dollar.

The final profit number involved $US2.35 billion of net write-downs on the failed Ravensthorpe nickel project in Western Australia and another $US1.2billion of charges from other impairments, rehabilitation at the Newcastle steelworks and the failed Rio Tinto bid.

Mr Kloppers stressed BHP's low gearing ratio of below 10 per cent and strong cash flows and said the company still planned to invest through the downturn.

BHP was also in a position to take advantage of any opportunities that current depressed conditions threw up and was still keen to buy Rio's minority stake in BHP's Escondida copper mine in Chile, he said.

Capital spending is forecast to be $US11.3 billion this financial year, up from $US9.3 billion last year but down $US2.2 billion from the previous forecast.

That compares with Rio Tinto's recent decision to cut capital spending from more than $US9billion to $US4 billion as the company struggles to pay down $US38.9 billion of debt.

Deutsche Bank analyst Peter O'Connor said the profit announcement was a reasonable result on a mixed performance from the company's businesses.

Shares in the big miner reflected this view, ending down 1c at $29.77.