BHP Billiton turns more cautious on outlook

 

 

BHP and rivals such as Rio Tinto and Anglo American, have warned that markets are likely to remain volatile in the near term, but BHP is the first to highlight that customers are starting to face tougher credit conditions.

 

 

"The heightened volatility and uncertain economic outlook are expected to continue to weigh on sentiment in the markets for our commodities," Chief Executive Marius Kloppers told shareholders at the group's annual meeting in Australia.

 

 

Kloppers' outlook was also more cautious than at the group's annual meeting in London a month ago, where he said prices had softened in the face of global uncertainty.

 

 

However investors were unperturbed, pushing BHP's shares slightly higher in a flat broader market, as the challenging outlook is already baked into its share price.

 

 

"It's there for everyone to see, the world's a much more uncertain place at this juncture than what it has been over the last couple of years," said Tim Schroeders, a portfolio manager at Pengana Capital.

 

 

"It's prudent for BHP to bring that to everyone's attention and highlight that the world has changed and that it is a difficult operating environment."

 

 

BHP's Australian shares have fallen around 25 percent since hitting their high for the year in April as the outlook for the global economy has darkened, broadly mirroring the performance of Rio over the same period but underperforming a decline of around 15 percent in the wider market.

 

 

Chief executive Kloppers reiterated that customers had turned cautious in managing their stocks.

 

 

"We are also aware that for some of the people we do business with, there has been tightening in both the availability of trade finance and the terms on which it can be accessed," he said.

 

 

STILL SELLING EVERYTHING

 

 

He said that despite those challenges, the company was still able to sell everything it was producing and its customers were continuing to buy all their contracted volumes.

 

 

"There's nothing that we've seen with regard to the large consumer nations and China and Asia in general that gives us cause for concern," said James Bruce, portfolio manager at Perpetual Investments, which owns BHP shares.

 

 

After delivering a record $21.7 billion profit in the last financial year, the Australian Shareholders Association pressed BHP to hand back more cash to shareholders, following a $10 billion share buyback completed earlier this year, rather than chasing more acquisitions.

 

 

Chairman Jacques Nasser stuck to the company's line that it would always consider buybacks alongside potential acquisitions and its plans to spend $80 billion in the five years to 2015 to expand iron ore, coal, copper, uranium and natural gas production.

 

 

"We'll continue to pursue acquisitions where we believe they represent value for shareholders," Nasser told shareholders.

 

 

Despite shaky global markets, analysts are still expecting the company to post 7 percent profit growth this year to another record around $23.2 billion.

 

 

Iron ore miners, led by Brazil's Vale and Rio Tinto, have also said they expect the recent slump in iron ore prices to be temporary, with prices already recovering.