BHP Billiton today announced a new “simplified” operating model to accelerate productivity and create a more agile company “ready to respond to the challenges and opportunities presented by a rapidly changing global marketplace”.
The simplification has lead to drastic changes in management, including division heads getting the chop, as the company’s minerals production operations are organised into two regional units – Minerals Australia and Minerals Americas.
“These changes are a continuation of our simplification journey. They are made possible by the recent demerger of South32 and well-timed asset divestments, and reflect our continued commitment to improve productivity,” BHP Billiton CEO Andrew Mackenzie said.
“At the core of the new model will be assets dedicated to safety, volume and cost enabled by functions integrated globally and largely co-located with the assets.
“Both assets and functions will have fewer layers and hence fewer people required to lead and run the organisation. This closer connection between management and operations will promote greater efficiency, rapid sharing of best practice and adoption of new technology to improve safety, productivity and learning – as well as management of risk.
“Our focused portfolio of tier one assets will now be managed through a vastly simplified operating model, positioning BHP Billiton to create new opportunities for value and growth into the future.”
The company’s oil and gas exploration and production operations will continue to be housed within a global Petroleum unit, reflecting the operating environment in that sector.
The business changes, which are effective from March 1, will see the current President Iron Ore Jimmy Wilson and President Petroleum Tim Cutt let go.
BHP also released their half-year results, which showed a US$5.67 billion loss, with revenues falling 37 per cent, recording US$15,712 billion for the half year.
“Our purpose is to deliver consistent and sustainable shareholder value. Since the merger of BHP and Billiton in 2001, we have returned a total of US$77 billion in cash to shareholders, more than any other company in this sector,” BHP Billiton chairman Jac Nasser said.
“At the same time, BHP Billiton understands the fundamental importance of maintaining a strong balance sheet. The changes to the dividend policy announced today reflect the Board’s assessment of the outlook for commodities and the increased financial flexibility this demands. 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.
“We have not made these changes lightly. They are a determined response to changing markets that will also help us take advantage of the significant opportunities ahead. We remain strongly committed to returning cash to our shareholders and in every reporting period, the Board will assess the possibility of returning additional cash over that implied by the 50 per cent payout ratio, as we have done this period.”
BHP Billiton Chief Executive Officer, Andrew Mackenzie, said slower growth in China and the disruption of OPEC have resulted in lower prices than expected.
“However, our company remains resilient with assets that generate free cash flow through the cycle and a strong balance sheet. Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP Billiton manage volatility. We have already responded decisively to the changed conditions,” Mr Mackenzie said.
“The divestment of US$7 billion of assets and the demerger of South32 leaves us with a focused portfolio of large, low-cost, long-life assets in a set of favoured commodities. We are operating our assets more productively with US$10 billion of gains achieved since 2012. We expect to realise a further US$2.1 billion of gains in the 2016 financial year, when adjusted for the impact of lower grades at Escondida.
“We will also reduce capital expenditure in the 2016 and 2017 financial years by a total of US$3.5 billion, while retaining a suite of high-return, value-enhancing projects.
“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.”
In relation to the Samarco dam failure, which resulted in a financial cost of US$858 million, Mr Mackenzie said:
“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. Discussions on an agreement with the authorities for managing and funding long-term environmental and socio-economic rehabilitation plans are ongoing.”