BHP Billiton cuts dividend and profits slides as it battles commodity rout

James Nickerson
Follow James
BHP Billiton Announces Record Financial Results
The dividend cut is a first for BHP since it was formed in 2001 (Source: Getty)

Mining giant BHP Billiton has cut its dividend as it struggles to maintain its A-grade ratting in the midst of its biggest ever profit slump.

The company scrapped its pledge to keep its dividend steady or rising, slashing the dividend by 74 per cent.

Dividend per share has been cut from 62 cents to 16 cents, in a widely anticipated move.

BHP announced that it is adopting a new dividend policy which pays out a minimum of 50 per cent of underlying attributable profit at every reporting period.

Jac Nasser, BHP Billiton's chairman, said that the changes to the dividend policy were "not made lightly" and reflect the board's assessment on the outlook for commodities.

Read more: Metal prices soar on fears of supply shortage

"While the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged. The adoption of a dividend payout ratio will further support BHP Billiton’s financial strength, while providing flexibility at the bottom of the cycle and ensuring discipline at the top," Nasser said.

The dividend cut is a first for BHP, which was formed in 2001.

It comes after the ongoing commodities rout earlier this month prompted ratings agency Standard & Poor's to lower its long term credit rating on the from from A+ to A. S&P suggested that it could downgrade BHP Billiton further if it didn't change its dividend policy.

FTSE 100 rivals Anglo-American, Rio Tinto, and Glencore have all been forced to give up their dividends over recent weeks as a slowdown in emerging markets bites.

BHP Billiton's chief executive Andrew Mackenzie said that the new dividend policy was part of a boarder strategy to help manage volatility, including the "divestment of $7bn of assets and the demerger of South32".

"With improved financial flexibility and a portfolio of high-return growth options, we are well positioned to grow shareholder value and cash returns over the long term," Mackenzie added.

The announcement on dividends was made at the same time the company reported underlying profits to have fallen 92 per cent to $412m (£291m) for the six months to the end of December, compared with $4.9bn in the same period a year ago.

Read more: Standard & Poor's downgrades miner BHP Billiton

The miner also reported underlying earnings before interest, tax, depreciation and amortisation of $5.99bn, down 54 per cent on the same period a year ago, while capital and exploration expenditure dropped 40 per cent to $3.6bn.

BHP Billiton took an $858m hit on the Samarco dam failure, an incident which left 17 people dead and put pressure on BHP Billiton's share price.

"Everyone at BHP Billiton has been deeply affected by the tragedy at Samarco. Supporting the response efforts, rebuilding communities and restoring the environment impacted by the dam failure remains a priority and substantial progress has been made," said Mackenzie. "Discussions on an agreement with the authorities for managing and funding long-term environmental and socio-economic rehabilitation plans are ongoing.”

The company also announced that it would be simplifying its business model, focussing on geographic operating regions. It said that petroleum boss Tim Cutt and iron ore boss Jimmy Wilson are both going to be leaving the company.

Related articles