Underlying profit of $US6.4 billion was slightly below expectations and was down 51.6% on the 2014 financial year.

Attributable profit slumped 86.2% to $1.9 billion, but was also impacted by the spin-off of South32.

Underlying earnings before interest, tax, depreciation and amortisation fell 27.9% to $21.8 billion, while underlying EBIT was down 46.3% to $11.8 billion.

The company recorded a “sector-leading” EBITDA margin of 50%.

Broken down, iron ore remained the biggest contributor to EBIT at $6.9 billion, followed by copper at $3.3 billion, petroleum at $1.8 billion and coal at $348 million.

Net operating cashflow from continuing operations fell 24.7% to $17.8 billion, while free cashflow was $6.3 billion.

BHP CEO Andrew Mackenzie said productivity gains of $4.1 billion had generated strong cashflow to support the board’s commitment to a progressive dividend.

The company increased its full-year dividend by 2% to $1.24 per share.

When asked what it would take to result in a cut to the dividend, Mackenzie said: “Over my dead body sounds a little strong but it's almost right.”

The company invested $11 billion in capital projects and exploration during the year.

Net debt dropped $1.4 billion to $24.4 billion, below consensus of $25.4 billion, while gearing rose to 25.7% from 23.2%.

Outlook

“We have an unrelenting focus on productivity and costs – and there’s plenty more to come,” Mackenzie said.

For FY16, Black Hawk drilling costs are expected to drop 26% to $2.5 million per well, Escondida grade-adjusted unit costs should fall by 15% to 91c per pound, Western Australian iron ore unit costs are set to drop a further 20% to $15 per tonne, and Queensland coal costs are likely to be 6% lower at $61/t.

FY16 capex has been reduced from $9 billion to $8.5 billion, while FY17 capex is expected to fall further to $7 billion.

Mackenzie said the second half of FY16 should be better for commodity prices.

He didn’t rule out merger and acquisition activity in copper and petroleum.

“Of course we’ll look at the possibility of acquisitions but we won’t overpay,” Mackenzie said.

China

BHP is expecting ongoing economic reforms in China to contribute to periods of market volatility – like those seen this week.

But the company lowered its forecast of peak steel demand in China from 1-1.1 billion tonnes to 935-985 million tonnes by the mid-2020s.

“This backdrop will favour low-cost producers with economies of scale,” Mackenzie said.

Reaction

RBC Capital Markets upgraded BHP from underperform to sector perform and lifted its price target by $A2 to $27 after being impressed by the company’s focus on cash and capex reduction.

“BHP's FY15 results have changed our view on the prospects for the stock from many perspectives,” RBC analyst Chris Drew said.

“Worth noting is that we now see the stock as a high single-digit free cashflow-yielding stock without fully pricing in all of our potential cost gains (iron ore, capex and working cap) in the coming two years.”

Investec put its hold rating under review on BHP’s commitment to dividends.

“While BHP’s earnings were down year-on-year, this is no surprise given the decline in commodity prices,” Investec analyst Hunter Hillcoat said.

“What was notable is the extent to which it is combatting this.”

BHP shares opened 1.5% lower at $23 this morning.