LONDON (Alliance News) - BHP Billiton Group, the world's largest miner, Tuesday joined peers in the resources sector by responding to steep price falls by slashing its capital and exploration spending plans, although its shares are doing well after its first-half results beat market hopes and it raised its interim dividend by 5%.
The Australia-based mining giant reported net profit of USD4.27 billion or USD0.80 per share for the six months to end-December, down 47% from USD8.11 billion or USD1.52 a share in the same period in the previous year. Revenue declined 11.9% to USD29.90 billion, from USD33.95 billion.
"Demand for our products remained solid, despite growth moderating as anticipated. However, strong supply growth, most notably in iron ore and petroleum, contributed to weaker prices in the December 2014 half year," said BHP Billiton.
The mining giant reduced capital and exploration expenditure by 23% to USD6.4 billion in the first half and plans to invest a total of USD12.6 billion in the 2015 financial year, 15% lower than its original guidance. It is also projecting lower capital and exploration expenditure of USD10.8 billion in the 2016 financial year. Some of the cuts to planned spending are because of the productivity drive the company is undertaking across the business, but the cuts are also a response to the price declines for commodities like oil and iron ore.
"Despite significant falls in the prices of our main commodities over the last six months, group margins remain healthy, free cash flow has increased and we have strengthened our balance sheet," said Chief executive Andrew Mackenzie. "We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns".
Sticking in the sector, UK Chancellor of the Exchequer George Osborne has pledged to do more to support the North Sea oil and gas sector after the industry warned that the recent slide in oil prices at a time when costs are also rising was hurting potential investment in the area.
Oil and Gas UK, the organisation that represents the UK offshore industry, has conducted a survey to show its member companies' upcoming plans for exploration, investment and production in the UK, predominantly in the North Sea, and the organisation said the industry is "facing a difficult period as a result of falling oil prices."
The organisation said that operating expenditure rose by 8% in 2014, adding that a unit of production cost has "reached a record high" of GBP18.50 per barrel, whilst revenue from the North Sea has hit "the lowest since 1998," at around GBP24 billion for the year. It has also predicted that the amount of projects moving from the investment phase into production will fall by about a third in 2015.
"Equally alarming is the three-year, 2015 to 2017 outlook for projects yet to get company sanction, in which planned investment has fallen from GBP8.5 billion in last year’s survey to just GBP3.5 billion in current forecasts. The basin is not generating new projects and as a result, there is very little fresh investment," said Oil and Gas UK.
The Treasury Tuesday said the Chancellor has "vowed to take further action to support the North Sea oil and gas industry" in response to Oil and Gas UK's survey, ahead of a meeting between the parties.
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Markets: London stocks mixed as investors await the decision by Greece's creditors on the country's economic reform proposals and US Federal Reserve Chair Janet Yellen's semi-annual Congressional testimony on monetary policy.
Wall Street is set for a higher start, with stock futures indicating that the DJIA and S&P 500 will open up 0.1%, and the Nasdaq 100 slightly higher.
FTSE 100: up 0.2% at 6,922.87
FTSE 250: down 0.3% at 17,130.65
AIM ALL-SHARE: down 0.2% at 711.82
GBP-USD: down at 1.5441
EUR-USD: down at 1.1320
GOLD: down at USD1,198.10 an ounce
OIL (Brent): up at USD59.49 a barrel
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Top Corporate News
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Royal Dutch Shell said it is withdrawing its application for the proposed Pierre River oil sands mine in northern Alberta, Canada, so that it can "focus attention on its existing oil sands operations." Oil sands are a combination of clay, sand, water, and bitumen, which is a heavy black viscous oil that can be recovered. "The Pierre River mine remains a very long-term opportunity for us, but it’s not currently a priority,” said Lorraine Mitchelmore, president of Shell Canada and vice president of heavy oil.
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GKN reported lower pretax profit for 2014, hit by a lower valuation of its foreign exchange contracts in its accounts, although profit rose excluding this thanks largely to a lack of restructuring charges that weighed on its 2013 results. The engineer of components for the aerospace and auto markets reported a pretax profit of GBP221 million for 2014, down from GBP484 million in 2013, as it booked a GBP232 million impact from the mark to market valuation of forward foreign exchange contracts. However, its pretax profit excluding this mark to market valuation and other exceptional items, its preferred measure of profitability, rose to GBP601 million, from GBP578 million, after it booked GBP25 million in restructuring charges in 2013.
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Meggitt also reported lower profits for 2014, hurt by a range of factors including adverse exchange rates, disposals, research and development spending and higher sales of less-profitable products, but it said it had returned to organic revenue growth in the second half of the year and its order book has increased. The engineer of components for the aerospace, defence and energy markets also raised its final dividend, a move it said reflects its continuing confidence in its prospects. Meggitt reported a pretax profit of GBP208.9 million for 2014, down from GBP269.4 million in 2013, as revenue fell to GBP1.55 billion, from GBP1.64 billion.
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Persimmon joined peer Bovis Homes in reporting a big rise in profit for 2014 driven by higher home sales at higher average prices, and said 2015 had got off to a solid start. Persimmon expects a slight slowdown in the market around May's General Election, but said the improving UK economy and increased mortgage lender support for the Help to Buy scheme would drive the market for 2015 as a whole. Persimmon reported a pretax profit of GBP467.0 million for 2014, up from GBP337.1 million in 2013, as revenue rose to GBP2.57 billion, from GBP2.09 billion. Legal completions rose 17% to 13,509 homes, while its average selling price rose 5.3% to GBP190,533.
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Mondi reported higher profits for 2014, driven largely by cost-cutting and other measures aimed at boosting margins, and said it is confident of "making further progress" in 2015 thanks to the investments it has been making in the business. The South Africa-based paper and packaging company reported a pretax profit of EUR619 million for 2013, up from EUR499 million in 2013, even though revenue dropped to EUR6.40 billion, from EUR6.48 billion. It raised its full-year dividend to 42.0 euro cents, from 36.0 cents in 2013.
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Aviva's asset management business has been fined GBP17.6 million by a UK financial regulator due to systems and controls failings that meant it failed to manage conflicts of interest on its fixed income fund desks fairly. From August 20, 2005 and June 30, 2013, Aviva Investors employed a "side-by-side management strategy" on some desks within its fixed income area, under which funds that paid different levels of performance fees were managed by the same desk, the regulator said.
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Just Retirement Group, the provider of specialist annuity products, said it is well placed to compete and has new products to roll out when new rules governing savings and pensions come into force in April, even as it reported a fall in operating profit in the first six months of its financial year. Chief Executive Rodney Cook also said that the annuity provider, majority owned by private equity firm Permira, would participate in industry consolidation if it improves shareholder value.
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Croda International reported a fall in 2014 pretax profit, with sales falling as weak consumer demand in key markets hit its personal care business, commodity markets volatility dragged back its industrial chemicals unit and the strength of sterling weighed on its reported results. FTSE 250-listed Croda said its pretax profit for the year to the end of December was GBP229.4 million, down from GBP250.1 million a year earlier. Sales for the year fell to GBP1.05 billion from GBP1.08 billion a year earlier, hit by a fall in its personal care sales and by industrial chemicals revenue, as well as the strength of sterling which weighed on overseas sales when translated into the currency. At constant currencies, sales for 2014 rose to GBP1.11 billion.
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Shares in Elementis were trading lower after the company posted a rise in pretax profit and sales in 2014 and hiked its dividend, but said the strong performance in its specialty products business it being held back by flat trading in its chromium arm and weakness in its surfactants unit. The FTSE 250-listed specialty chemicals company's shares were down 2.0% to 278.75 pence, one of the worst performers in the FTSE 250, after it said its pretax profit for the year to the end of December was USD141.9 million, up from USD136 million last year. Sales for the year rose to USD790.4 million, compared to USD776.8 million last year, as a strong performance in its specialty products unit was offset to a degree by the performances in its chromium and surfactants businesses, though Elementis said both performed in line with its expectations.
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NMC Health announced a deal to buy up an 86.4% stake in Barcelona-based fertility treatment clinic Clinica Eugin for EUR143 million, as it posted a rise in pretax profit for 2014. The private healthcare provider in the United Arab Emirates posted a pretax profit of USD77.5 million, up from USD69.1 million, as revenue rose to USD643.9 million from USD550.9 million and it posted a higher depreciation charge. NMC proposed a total dividend per share for the year of 5.4 pence, up from 4.4 pence a year before.
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Ashmore Group reported a 37% rise in first-half pretax profit to GBP110.7 million despite reporting a 15% fall in the assets it manages over the course of the six months. In a report on the six months to the end of December 2014, the emerging markets asset manager said that pretax profit rose due to "rigorous control" of operating costs, higher performance fees, and a stronger dollar, all of which combined to offset a decline in management fee income. Assets under management fell to USD63.7 billion from USD75.0 billion over six months, contributing to a fall in first-half net management fees to GBP133.0 million from GBP149.8 million in the corresponding period last year.
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Aer Lingus, the Irish airline that's backing a takeover attempt by International Consolidated Airlines Group, reported that it swung to a pretax loss in 2014 as it made a large one-off payment into its pension scheme, although operating profit rose as it reported growth in passenger numbers and average fares. The Irish flag carrier reported a pretax loss of EUR111.5 million for 2013, compared with a profit of EUR39.6 million in 2013, as it made a EUR190.7 million payment into the pension scheme following a settlement agreed between the airline, unions, the pension trustees and the Irish pension authority.
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AIM Movers
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Crawshaw Group is doing well after it said it would beat market expectations for its recently-ended financial year, helped by higher revenue and a better-than-expected improvement in cash margins as customers spent more on each shop. Bowleven is up after the President of Cameroon's approval for the company's proposed deal to sell a stake in its Etinde project to LUKOIL and NewAge was formalised. Sefton Resources has lost 40%of its value after it raised GBP900,000 in a share placing, issued shares to cover payment to an employee of a former subsidiary, and said it has entered talks on the sale of its TEG MidContinent Inc and TEG Transmission LLC businesses. Wentworth Resources is down after it plugged and abandoned the Kifaru-1 well at the Rovuma concession in Mozambique after failing to find an economic reservoir. LGO Energy is another faller after it said it has raised GBP4.3 million in a discounted share placing.
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Other Top Economics And General
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The German economy gained momentum towards the end of 2014 as initially estimated driven by foreign demand and household spending, detailed results published by Destatis showed. Gross domestic product grew 0.7% in the fourth quarter from last quarter, when it was up 0.1%. The sequential growth came in line with the preliminary estimate published on February 13. The calendar-adjusted GDP advanced 1.4% on a yearly basis following third quarter's 1.2% increase. At the same time, adjusted for price variations, GDP rose 1.6% versus 1.2% in the previous quarter. Annual numbers also matched initial data.
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Eurozone harmonized consumer prices declined the most since July 2009 as initially estimated at the start of 2015, final data from Eurostat showed.The harmonized index of consumer prices in the 19-nation currency bloc fell 0.6% year-on-year in January, following a 0.2% drop in December. The rate came in line with the flash estimate published on January 30. This was the second consecutive fall in prices and the lowest since July 2009. On a monthly basis, the index declined 1.6% in January.
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Greece's creditors - the European Commission, European Central Bank and International Monetary Fund - are all satisfied with the reforms submitted by Athens in its bid for a bailout extension, EU sources told Dpa. Greece submitted new economic reform proposals on Tuesday in a bid to secure a four-month extension to the European share of its bailout, with Finance Minister Yanis Varoufakis blaming the one-day delay on the country's international creditors. Athens had been asked to come up with a detailed list of reforms by midnight on Monday, as part of an agreement reached last week with eurozone finance ministers to extend the country's bailout until June and receive loans to repay its debts. But with less than four hours to go until the deadline, Prime Minister Alexis Tsipras' office issued a statement saying that Athens would send the list off on Tuesday, ahead of a Greek cabinet meeting at 12 pm (1000 GMT). Eurozone finance ministers will hold a teleconference in the afternoon to discuss the proposals submitted by the new leftist government. According to the statement from Tsipras' office, its six-page list of proposed reforms will include measures to fight tax evasion and corruption, cut down on bureaucracy and address the humanitarian crisis Athens says has been created by Greece's six-year recession.
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Members of Opec have discussed holding an emergency meeting if crude continues to slide, the Financial Times reports, citing an interview with Nigeria’s oil minister. The comments by Diezani Alison-Madueke come three months after the cartel’s decision to hold production at 30 million barrels a day, even as the oil price has plunged since mid-June, and is a sign of their growing alarm over the impact of a lower oil price on their economies, the FT said.
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The pro-Russian separatists in eastern Ukraine said that they are starting a full-scale unilateral withdrawal of their heavy weapons from the front line, while fresh talks on implementing a ceasefire began in Paris. The self-declared Donetsk People's Republic plans to withdraw 96 artillery howitzers, militia leader Eduard Basurin said according to the rebel-run Donetsk News Agency. He added that the rebels already withdrew 20 units over the past days. Ukraine said Monday that it won't withdraw its heavy weapons, citing continued ceasefire violations by the separatists. On Tuesday, the military operations centre said that separatists opened fire 12 times on Ukrainian positions.
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The next round of talks between Tehran and six world powers on the Iranian nuclear programme is expected on March 2 in Geneva, the US and Iran said. Some progress was made in the latest round of nuclear talks between Iran, the US and other world powers that ended Monday in Geneva, Iranian Foreign Minister Mohammad Javad Zarif said. "However, we still have a long way to go until an agreement," he said after talks with US Secretary of State John Kerry, noting that a new round would start likely next Monday in Switzerland, according to Iranian media.
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US President Barack Obama warned that this week's looming expiration of the Homeland Security Department budget would put national security at risk unless the opposition-led Congress passes new spending authority. The civilian department's budget expires Friday. Conservative Republicans, who hold majorities in both chambers of Congress, have sought to use the homeland security budget to counter a November executive order by Obama to protect up to 5 million illegal immigrants from potential deportations.
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Afternoon Watchlist (all times in GMT)
13:00 EU Eurogroup Conference Call
13:55 US Redbook index
14:00 EU ECB President Draghi's Speech
14:00 US S&P/Case-Shiller Home Price Indices
14:45 US Markit Services/Composite PMI
15:00 US Consumer Confidence
15:00 US Fed's Yellen testifies
15:00 US Richmond Fed Manufacturing Index
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Wednesday's Key UK Corporate Events
JPMorgan Indian Investment Trust - Interim Management Statement
MJ Gleeson - Half Year Results
St James's Place - Full Year Results
Wilmington Group - Half Year Results
Whitbread - Q4 Trading Update
Brit - Full Year Results
Barratt Developments - Half Year Results
Hays - Full Year Results
Henderson Group - Full Year Results
International Personal Finance - Full Year Results
Molins - Full Year Results
Petrofac - Full Year Results
Safestore Holdings - Q1 Trading Statement
Vitec Group - Full Year Results
Weir Group - Full Year Results
Man Group - Full Year Results
Segro - Full Year Results
TSB Banking Group - Full Year Results
Avingtrans - Full Year Results
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Wednesday's Key Economic Events (all times in GMT)
01:45 China HSBC Manufacturing PMI Preliminary
09:00 Italy Trade Balance non-EU
09:30 UK BBA Mortgage Approvals
14:30 EU ECB President Draghi's Speech
15:00 US Fed's Yellen testifies
15:00 US New Home Sales
15:30 US EIA Crude Oil Stocks change
23:50 Japan Foreign bond/stock investment
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19 May 2016 11:28