SYDNEY (REUTERS) - BHP Billiton slashed its interim dividend by 75 per cent on Tuesday (Feb 23), abandoning a long-held policy of steady or higher payouts as a collapse in prices for oil, iron ore and coal pushed it into the red.
The widely anticipated end to BHP's progressive dividend policy came as the world's biggest diversified miner slumped to a net loss of US$5.67 billion (S$7.95 billion) for the six months to Dec 31, its first loss in more than 16 years.
"We need to recognise we are in a new era, a new world and we need a different dividend policy to handle that," chief executive Andrew Mackenzie said on a media call, warning of a prolonged period of weaker prices and higher volatility.
BHP also revamped the company's structure in a bid to simplify its operations, creating US and Australian mineral divisions in a move that will see its longtime iron ore chief Jimmy Wilson and petroleum head Tim Cutt depart.
The size of the dividend cut, down from 75 cents to 16 cents, was more severe than market expectations for a payout as high as 35 cents. In future, the company pledged a minimum 50 per cent payout of underlying profit.
"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.
Mr Mackenzie said the policy change was part of a broader strategy to help BHP Billiton manage volatility. "The financial flexibility we will gain as a company from this move... will allow us to invest counter cyclically," he said. "It will allow us to look at tier one assets in distress."
Standard & Poor's cut BHP's credit rating to A from A+ this month and warned it might downgrade the rating further 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 favour," said Fat Prophets mining analyst David Lennox.
Underlying attributable profit plunged to US$412 million from US$4.89 billion a year earlier, missing analysts' forecasts for around US$585 million, as commodities prices plummeted to multi-year lows.
"While the miss looks big in percentage terms, the numbers are quite frankly disappointingly low anyway," said Shaw's O'Connor, pointing to BHP's US$100 billion asset base.
Despite the tough outlook, Mr Mackenzie said BHP was still generating EBITDA (earnings before interest, tax, depreciation and amortisation) margins of 40 per cent, which is ahead of the reported figure for rival Rio Tinto of around 34 per cent.
At today's spot prices, the company would expect to generate US$10 billion in operating cashflow for the year, he said.
BHP's results included an after-tax charge of US$858 million following a dam disaster in Brazil at its Samarco joint venture with Vale, which killed 17 people in that country's worst environmental disaster.
BHP shares rose 2.9 per cent to US$17.66 in late morning trade, a seven-week high in a slightly firmer overall market.