News Column

UK MIDDAY BRIEFING: BHP Billiton Confirms Asset Demerger

August 19, 2014

LONDON (Alliance News) - BHP Billiton Tuesday confirmed that it will demerge its aluminium, coal, manganese, nickel and silver assets into a new company, pledging to cut costs and improve the productivity of its remaining businesses in an attempt to boost shareholder returns.

The move, which the mining giant had said it was considering last week, will leave it focused on iron ore, copper, coal, petroleum and potash.

The new company will be listed in Australia and South Africa and will be wholly owned by BHP Billiton's existing shareholders initially. BHP Billiton Chief Financial Officer Graham Kerr will become chief executive while Head of Investor Relations Brendan Harris will become chief financial officer. Both will be based in Perth, Australia. David Crawford will be its chairman, stepping down from the board of BHP Billiton.

The mining giant also said its pretax profit rose to USD22.24 billion in the 12 months to June 30, from USD21.00 billion in the previous year, as revenue rose to USD67.21 billion, from USD65.95 billion and it cut costs. Its net profit rose to USD13.8 billion, from USD11.2 billion.

It said cost efficiencies and productivity-led volume gains were USD2.9 billion in the year, USD1.1 billion more than it had targeted, bringing total productivity-led gains to over USD6.6 billion in the past two years.

It cut capital and exploration spending by 32% to USD15.2 billion, helping it deliver a USD8.1 billion rise in free cash flow despite the fall in commodity prices during the year.

BHP Billiton increased its full-year dividend to 121.0 cents a share, from 116.0 cents last year, but its shares fell because the market had also expected it to announce a share buyback of USD3 billion to USD5 billion.

Liberum, which is keeping a Hold rating on the stock, said the share fall was overdone, and the company's earnings and free cashflow had beaten its estimates.


Markets: UK stocks are pushing higher Tuesday, for the second consecutive day this week, as the geopolitical backdrop remains more supportive of risk trades.

US futures indicate that another higher open can be expected on Wall Street, with the DJIA, the S&P 500, and the Nasdaq Composite all pointing up between 0.1% to 0.2%.

FTSE 100: up 0.4% at 6,766.65

FTSE 250: up 0.7% at 15,912.40

AIM ALL-SHARE: up 0.5% at 762.72

GBP-USD: down at 1.6648

EUR-USD: down at 1.3347

GOLD: up at USD1,300.36 an ounce

OIL (Brent): flat at USD101.81 a barrel


Other Top UK Corporate News


AstraZeneca said the US Department of Justice has closed a probe into a clinical trial involving anti-clotting drug Brilinta and won't be taking further action, as it also reported that antibiotic ceftazidime-avibactam hit the targets in late-stage trials into its potential use against intra-abdominal infections. The so-called PLATO trial for Brilinta was an outcome study comparing the drug as a treatment with aspirin against clopidogrel plus aspirin. It was established to see whether Brilinta plus aspirin could achieve a meaningful reduction in cardiovascular events like heart attacks in acute coronary syndrome patients, above and beyond that afforded by clopidogrel plus aspirin. It involved 18,624 patients in 43 countries.


Standard Chartered is in talks to pay up to USD300 million to settle allegations made by the New York banking regulator that it failed to identify suspicious transactions, despite having pledged to improved its procedures following a fine for violating sanctions two years ago, the Financial Times reported Monday. The New York Department of Financial Services may announce the settlement as soon as this week, the FT said, citing sources familiar with the matter. In addition, the paper reports that the bank is likely to agree to additional disciplinary measures, including extending the contract of an independent monitor charged with identifying suspect transactions.


Persimmon became the latest UK housebuilder to report an increase in profit in the first half of 2014, as the FTSE 100 company benefited from an increase in the number of new homes built and an increase in the average selling price of its properties. The Kent-based housebuilder said pretax profit more than doubled to GBP49.4 million for the six months-ended June 30, from GBP18.6 million a year earlier. Persimmon said pretax profit rose to GBP208.9 million for the six months-ended June 30, from GBP132.9 million a year earlier, as revenue rose 33% to GBP1.20 billion from GBP899.9 million.


CRH said it swung to profit in the first half, despite facing a number of challenges in the US. The company, which has operations across Europe and the Americas, was hit hard by the financial crisis and ensuing economic downturn, which weighed heavily on construction markets. Last year, it embarked on a review of its operations in an attempt to rebuild its profit margins and deliver better returns. It has completed the first stage of the review and put businesses that don't meet its new returns criteria up for sale. Dublin-based CRH posted pretax profit of EUR61 million for the six months ended June 30, compared with a EUR71 million loss a year earlier, as revenue rose to EUR8.32 billion from EUR8.01 billion.


Cairn Energy said its net loss narrowed sharply in the first half of the year, after last year's result was hit by big impairments, but its operating loss widened as unsuccessful exploration costs rose. The oil explorer, which is fighting tax claims from the Indian government, reported a net loss of USD62 million for the six months to June 30, compared with the USD219 million loss it reported a year earlier when it had booked a USD268 million writedown on its investment in its former Indian subsidiary. It sold a controlling stake in the business to Vedanta Resources in 2010. However, its operating loss widened to USD125.2 million, from USD107.7 million in the first half of 2013, as unsuccessful exploration costs rose to USD79.9 million, from USD49.2 million. The company isn't currently earning any revenue.


Oil and gas services company John Wood Group reported an increase in profit, following a strong performance from its production services business. The company posted pretax profit from continuing operations of USD233.3 million for the six months ended June 30, up from USD176.3 million a year earlier, as revenue from continuing operations rose 16% to USD3.22 billion. It kept its full-year guidance and increased its interim dividend 25% to 8.9 cents from 7.1 cents.


Imperial Tobacco Group reported a slight fall in sales volume and revenue for the first nine months of its financial year, but left unchanged its full-year guidance for "modest" growth in earnings per share and a dividend increase of at least 10%. The London-based tobacco firm said its stock optimisation programme reduced trade inventories in a number of markets, especially Iraq and Russia, which has hit volume, revenue and profit. The company said it still expects "modest growth" in earnings per share at constant currency rates for the full financial year, accompanied by at least a 10% increase in dividend. It also said its cost-optimisation programme remains on track to deliver incremental savings of GBP60 million for the full year. However Imperial Tobacco said its profit continues to be hurt by the strong pound.


Stagecoach, First Group and Go-Ahead Group were all shortlisted as the UK government revealed its lists of bidders for two railway franchises in the North of England. The UK Department For Transport shortlisted Abellio Northern Ltd, owned by Dutch rail firm Abellio, Arriva Rail North, owned by Germany'sDeutsche Bahn AG, and Govia North Ltd, a joint venture between Go-Ahead and French rail firm Keolis, for the Northern franchise. It also shortlisted Keolis and First Group joint venture First TransPennine Express Ltd, a separate joint venture between Keolis and Go-Ahead called Go-Ahead Ltd, and Stagecoach's TransPennine Express Trains Ltd, for the TransPennine Express franchise.


Big Yellow Group said it has completed the refinancing of its bank facilities, resulting in both a lower average cost of debt and an increased average unexpired term of its debt facilities. In a statement, the self storage group said it has signed a five-year GBP145.0 million loan facility with Lloyds Bank and HSBC Bank, expiring in August 2019. In addition, the group has signed a new GBP70.0 million facility with M&G Investments Ltd, part of Prudential. The term will be seven years from the date of drawdown which can occur at any time up to June 29, 2015. Lloyds Bank also has provided Big Yellow with a GBP70.0 million short-term bridging facility, which must be repaid on the drawdown of the M&G loan.




Ultrasis has risen after it said invoiced sales for its last financial year are set to come in more than double the previous year, and that acquisitions it made and contracts won are moving it towards profitability. Sirius Minerals is up after WH Ireland initiated coverage of the stock with a Buy rating and a price target of 37 pence, well above Monday's closing price of 11.75 pence. Roxi Petroleum is another gainer after it said it successfully took a third core sample from the A5 deep well on the BNG Contract Area, and the gross oil-bearing interval now exceeds its initial expectations. Berkeley Mineral Resources is also up after its environmental impact statement for its lead-zinc recovery and copper-processing project at Kabwe in Zambia was approved by the Zambia Environmental Management Agency. Safeland is doing well after it was able to make its first distribution to shareholders in over a decade due to the demerger of its Safestay joint venture, despite a fall in profit for the full year. Stellar Diamonds is up after it reported more positive results from the Tongo kimberlite project in Sierra Leone and said it was set to increase the diamond resource at the site.Aurasian Minerals is down after it said Chief Financial Officer Simon Bullock is set to step up from the role to join the company's board as a non-executive with effect from September 1. He will retain oversight of the company's financial management and controllership. Beacon Hill Resources is also down after it reported a delay in the approval of its proposed USD20.0 million senior debt facility, citing circumstances beyond its control. Gaming Realms is down 9.7% after it agreed to buy e-gaming marketing company Blueburra Holdings, the holding company of Digital Blue, for up to GBP10.5 million, and raised about GBP6.0 million through a placing of 18.1 million new shares at 33 pence each to help fund the deal.


Top Economics And General


UK inflation slowed more than expected in July largely due to a fall in clothing prices and factory gate prices declined unexpectedly from last year, data showed. Inflation eased to 1.6% in July from 1.9% in June, the Office for National Statistics reported. Inflation was forecast to slow to 1.8%. Month-on-month, consumer prices fell 0.3%, offsetting the 0.2% increase in June. Economists had expected a 0.2% drop for July. Core inflation excluding energy, food, alcoholic beverages and tobacco, slowed to 1.8% in July after accelerating to 2% in June. Factory gate prices declined unexpectedly in July. Output prices slipped 0.1% annually, confounding expectations for a flat growth. In June, output prices gained 0.3%


House prices in the UK rose at a slightly slower pace in June compared to May, but the pace of increase remained solid, figures from the Office for National Statistics showed. The house price index climbed 10.2% year-on-year following 10.4% rise in May. Economists had forecast 10.2% gain for June. "This follows the moderate house price increases the UK has experienced since April 2012 and is driven in large part by increases in London," the ONS said. "The average UK mix-adjusted house price in June 2014 was GBP 265,000." Month-on-month, house prices rose 0.5% in June, after a 0.8% increase in May.


Regulated rail fares in England and Wales will rise by an average of 3.5% from January 2015, after July's retail price index on which fare increases are based rose by 2.5% on the year. The UK government allows rail firms to raise average regulated fares using a formula of July's retail price index plus 1%. Regulated fares include season tickets and some standard return fares, as well as most commuter fares in and around London. Train companies are also given the flexibility to raise fares by 2% above the average, as long as the overall average stays at RPI plus 1%. That means fares on some routes could rise by as much as 5.5%, as long as fare increases are also below average on other routes.


Kurdish Peshmerga forces took control Monday of two villages located near Iraq's strategic Mosul Dam, which they seized from Islamic State (IS) militants earlier, local media reported. Alsumaria news reported that the Kurdish forces "freed the two villages of Sahlaj and Ein Manea" and are now advancing toward Zumar town. The move comes after Peshmerga and Iraqi troops took full control of the Mosul Dam in northern Iraq, according to army spokesman Qassem Atta. He said that most IS militants were killed at the dam.


Israel and the Palestinian factions agreed Monday to extend by 24 hours a temporary ceasefire, just minutes before the deadline expired, but efforts for an extended truce were elusive. The sides have been holding indirect talks in Cairo during the ongoing ceasefire, in place since Thursday. There are still sticking points, negotiators have been quoted by local media as saying, especially with regards to the blockade on the Gaza Strip.


Japan's leading index rose more than initially estimated in June, final data from the Cabinet Office showed. The leading index rose to 105.9 in June, which was revised up from 105.5. That followed by a 104.8 score in May. Nonetheless, the score improved for the first time in five months as initially estimated in June.


The World Health Organization on Monday voiced opposition to Ebola-related travel and trade bans, as the virus that has killed more than 1,100 people continued to spread across West Africa. The risk of getting infected with Ebola during travel was "low," the WHO said in a statement. The declaration came on a day that Liberia ordered its armed forces to shoot people trying to illegally enter the country from Sierra Leone.


A stockpile of Syrian chemical weapons has been destroyed aboard a US ship, US President Barack Obama said Monday. "Today we mark an important achievement in our ongoing effort to counter the spread of weapons of mass destruction by eliminating Syria's declared chemical weapons stockpile," he said in a statement. He called the move a "major milestone" in international efforts to destroy the Al-Assad regime's chemical weapons.


The governor of the central US state of Missouri on Monday lifted a curfew in a St Louis suburb that has seen a week of racial unrest, after he ordered National Guard soldiers to deploy to help restore order. Governor Jay Nixon said the National Guard would have "limited responsibilities" to protect a command centre in Ferguson, Missouri that was the target of protesters the night before. State police would continue to patrol the area, he said.


The Icelandic Meteorological Office on Monday raised its warning level for air traffic amid increased seismic activity at a volcano in the south east of the country. The Met Office said it was closely monitoring the volcano Bardarbunga situated under the Vatnajokull glacier, although there was currently no sign of an eruption. The warning level was raised to orange - the second highest level on the five-stage warning system. A 2010 eruption of a volcano under the Eyjafjallajokull glacier severely disrupted European air travel for several weeks after ash spewed into the atmosphere.


Afternoon Watchlist (all times British Summer Time)

13:30 US Building Permits

13:30 US Consumer Price Index

13:30 US Housing Starts

13:55 US Redbook index


Wednesday's Key UK Corporate Events

Carillion Half Year Results

Harvey Nash Group Trading statement

UK Commercial Property Trust Half Year Results

Glencore Half Year Results

Hikma Pharmaceuticals Half Year Results


Wednesday's Key Economic Events (all times British Summer Time)

00:50 Japan Merchandise Trade Balance Total

05:30 Japan All Industry Activity Index

07:00 Germany Producer Price Index

09:30 UK Bank of England Minutes

09:30 UK BOE MPC Vote

10:00 EU Construction Output

11:00 UK CBI Industrial Trends Survey - Orders

12:00 US MBA Mortgage Applications

15:30 US EIA Crude Oil Stocks change

19:00 US FOMC Minutes


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Source: Alliance News

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