The hands of the commodity downturn appear firmly wrapped around BHP Billiton. The top global miner posted its half-year results on Tuesday, revealing a net loss of $5.67 billion after revenue fell 37 percent to $15.7 billion for the six months to Dec. 31.
In response to the monstrous loss--its first in more than 16 years, BHP abandoned its long-held policy of steady or higher payouts and slashed its interim dividend by 75 percent – from 62 cents to 16 cents. The dividend cut is the first since 1988.
"We need to recognize we are in a new era, a new world and we need a different dividend policy to handle that,” Chief Executive Andrew Mackenzie told Reuters, saying the company is committed to a minimum 50 percent payout of underlying profit going forward.
"The financial flexibility we will gain as a company from this move ... will allow us to invest counter cyclically,” said Mackenzie. "It will allow us to look at tier one assets in distress.”
Along with the global slowdown in China, BHP encountered an array of problems last year from the Minas Gerais disaster, which accounted for $1.2 billion, to the $US7.2 billion write-off of its onshore shale assets. The good news for BHP is that this is probably as bad as it gets.
"Slower growth in China and the disruption of OPEC have resulted in lower prices than expected," said Mackenzie. "However, our company remains resilient, with assets that generate free cash flow through the cycle and a strong balance sheet."
“Given months of anguish and market debate regarding the dividend, we expect that 16 cents while disappointing, is a cash flow positive and therefore will likely be absorbed by the market," said Shaw and Partners analyst Peter O'Connor.
According to Reuters, the Standard & Poor cut BHP's credit rating to 'A' from 'A+' this month and warned it might downgrade again if the company failed to take more steps to preserve cash and review its dividend policy.
"I can't see (the ratings agencies) downgrading. They probably would have if the commodity outlook was still poor, but I think the outlook is starting to turn in BHP's favor," said Fat Prophets mining analyst David Lennox.
BHP also announced changes to its corporate structure that will see its iron ore chief Jimmy Wilson and petroleum head Tim Cutt depart.