Michael Bleby Reporter

Michael writes on emerging markets, architecture and engineering. He has served as a correspondent in Tokyo, London and Johannesburg and has written for Reuters, the Financial Times, The Age and The Sydney Morning Herald.

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Biggest profit: BHP Billiton

Published 30 January 2013 17:46, Updated 09 August 2013 15:12

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Biggest profit: BHP Billiton

Protective .... BHP chief Marius Kloppers halted massive capital spending expansion plans. Photo: Arsineh Houspian

In a tough year in which Australia’s economic growth slowed to a pedestrian plod, the most profitable companies in 2012 were the ones that navigated the turbulence by managing costs and meeting consumer needs – or were in mining. However, it was also a year in which even the resources boom stopped being a gold rush.

BHP Billiton posted easily the biggest profit on the Top 1000 – a staggering $15.2 billion but that was down almost 35 per cent on the previous year. It was also forced to listen to shareholder protests and shelve capital investment worth $US80 billion over five years.

“Last year they started off extremely optimistically and finished on a low note ... they didn’t have the cash flows to support a massive open-ended expansion,” Investec analyst Tim Gerrard says.

Notable projects affected included the $20 billion-plus expansions slated for the Outer Harbour project in Port Hedland and for Olympic Dam in South Australia. BHP divested assets, such as its Ekati diamond mine and marketing business, closed its metallurgical coal mines at Norwich Park and Gregory mine in Queensland and delayed the expansion of Peak Downs.

In an acknowledgement that not all was well, BHP chief Marius Kloppers said he would forgo his annual bonus.

This year, falling commodity prices are keeping the pressure on BHP to sell weak and non-core assets and to focus on its more profitable iron ore, coking coal, copper, oil and gas businesses. Further asset sales will help but won’t offset another likely fall in profit.

“They’re being proactive and protective whereas before they were overly optimistic,” Gerrard says.

In contrast to BHP’s 35 per cent decline in profit, 11th ranked Wesfarmers booked an almost 11 per cent increase. Earnings before interest and tax at its Coles grocery business rose 16.3 per cent to $1.3 billion as margins rose – despite a campaign on lower grocery prices – from 4.2 per cent to 4.6 per cent. In lean times, people tend not to buy new houses but renovate their existing ones, to the benefit of Wesfarmers’ hardware chain Bunnings, where earnings rose 4.9
per cent.

Despite lower growth and a more cautious environment, the country’s banks still managed to dominate the ranks of the most profitable by being strict with credit and minimising bad debt, raising fees and offering higher-margin services.

Telstra’s push on mobiles and network services also kept it in the ranks of the most profitable. The company added 1.6 million domestic mobile customers and revenue from mobile services jumped 8.5 per cent, even as fixed-line revenue declined 6.1 per cent.

Nearly 14 million people use Telstra’s mobile services – more than double rival Vodafone’s entire subscriber base.