Mackenzie moves on BHP's costs

This was borne out by a 17 per cent reduction in realised prices for iron ore, which hit underlying profits to the tune of $4.1bn. A marked fall-away in unit receipts for thermal and metallurgical coal cleaved another $3.7bn from profits, while overcapacity in aluminium and nickel markets, and the effects of global copper markets moving into surplus, accounted for another $1bn shortfall. The upshot was a 22 per cent year-on-year reduction in pre-tax profits to $17.9bn. Net profits came up short of analysts' expectations due to temporary affects that increased the group's effective tax rate to 39.3 per cent, against 34.8 per cent in 2012. Nevertheless, BHP felt able to increase the full-year dividend by 3.6 per cent to 116¢ a share covered by EPS of 221¢, down from 321¢ the prior year.

While just six months into his tenure as chief executive, Andrew Mackenzie has already made material progress on the cost front, although the group's projected capital outlay of $16bn ($21bn in 2013) through 2014 will restrict its ability to increase its dividend without stepping up its divestment programme, or increasing net debt, which, at $29.1bn (or 40 per cent of net assets), was up by $5.5bn on the 2012 financial year-end.

Reining in excess capital expenditure and hiving-off non-core assets have been central to Andrew Mackenzie's brief spell in the hot seat, so it was slightly surprising that the full-year figures were accompanied by news that BHP was going ahead with a $2.6bn outlay to build shafts and surface infrastructure at the Jansen Potash deposit in Canada. Prospects for global fertilizer prices are reportedly in flux following the recent collapse of the so-called Belarus cartel, involving Russia's Uralkali. BHP is keeping its development options open at Jansen, but it's bound to cause some anxiety among shareholders given the plethora of write-downs for resource majors in recent years.