BHP capitulates on dividends after posting monster $US6 billion loss

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BHP posted a massive half year loss of $US5.669 billion, the big miner’s first in 16 years, cuts its dividend by more than half and reorganised its management to create a leaner and more agile business.

Revenue was down 37% to $US15.71 as falling commodity prices continue to cut into the business.

BHP declared a fully franked dividend of just 16 US cents, a sharp fall from the 62 cents of the previous year, breaking its progressive policy of keeping payouts the same or higher.

The new dividend policy is to pay a minimum 50% of underlying attributable profit, more closely linking returns to shareholders to the cyclical performance of the business. Anything more than that, and the board will assess the company’s ability to pay.

The current dividend represents the minimum 50% payout of 4 US cents a share plus an additional amount of 12 cents.

The loss includes $US6.1 billion of after tax impairments including $US4.9 billion against the value of the oil shale assets in the US, $US858 million for the financial impacts of the fatal Samarco dam disaster in Brazil and $US390 million for global taxation matters.

In early trade, BHP shares were up 2.9% to $17.68.

Chairman Jac Nasser says the changes to dividends were not done lightly.

“They are a determined response to changing markets that will also help us take advantage of the significant opportunities ahead,” he says. “We remain strongly committed to returning cash to our shareholders.”

CEO Andrew Mackenzie says the new dividend policy is part of a broader strategy to help BHP manage volatility.

“Slower growth in China and the disruption of OPEC have resulted in lower prices than expected,” he says.

“However, our company remains resilient with assets that generate free cash flow through the cycle and a strong balance sheet.”

Mackenzie expects crude oil prices to remain weak in the short term as high inventory levels weigh on an oversupplied market and rising OPEC exports offset production declines in the US.

“The long-term outlook remains healthy,” he says.

BHP’s outlook for Chinese steel production is unchanged, peaking between 935 million tonnes and 985 million tonnes in the middle of the next decade, as China continues to urbanise and mature its manufacturing capability.

“The iron ore price will likely remain low, constrained by weak demand and abundant seaborne iron ore supply. Over time, additional low-cost seaborne supply will continue to displace higher-cost supply, and we expect productivity gains will continue to be an industry feature.”

BHP announced a management restructure at the same time as it released its December half results. The changes mean one less president role in Australia. Jimmy Wilson, currently president iron ore, has lost his job.

Chief Financial Officer Peter Beaven will assume global responsibility for strategy and business development, allowing the company to more effectively identify opportunities for value and growth across all commodities.

A new technology function is being established. Diane Jurgens has been appointed to the role of chief technology officer, reporting to the CEO, based in Singapore.

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