BHP Billiton Limited reports US$5.67 billion loss for 1H16

Mining giant BHP Billiton Limited (ASX: BHP) has reported its first-half earnings results today, revealing a record first-half loss of US$5.67 billion. It decided to cut its dividend and announced a restructure of its executive management team as well.

Here are some of the results:

  • Revenue down 37% to US$15.71 billion
  • Underlying earnings before interest and tax (EBIT) down 84% to $1.34 billion
  • Net operating cash flow of US$5.26 billion, down 45%
  • Underlying profit of US$412 million, down 92% from US$4.89 billion
  • Interim dividend of US 16 cents, down 74% on the prior corresponding period (pcp)

As is the case with most companies in the industry, BHP Billiton’s earnings have been heavily impacted by falling commodity prices. The company’s net profit result was hurt by the multi-billion dollar impairments booked by the company during the period, while even the underlying US$412 million profit was well below the market’s expectations.

As you would expect, much of the damage was caused by BHP’s iron ore and petroleum divisions. Underlying EBIT from the divisions were $1,927 million and negative US$299 million, respectively, down from US$4,200 million and US$2,256 million in the prior corresponding period.

Unfortunately, conditions aren’t expected to improve anytime soon, either, which is one of the reasons why the company elected to scrap its progressive dividend policy today. This was largely expected, although the magnitude to which it was cut may have taken some investors by surprise.

The company also said it would rearrange its top executives in order to simplify its operating model and accelerate productivity and value creation to be “ready to respond to the challenges and opportunities presented by a rapidly changing global marketplace.”

As part of the changes, BHP’s tier one assets will be managed through a more simplified model which will apply a greater focus to geographical regions as opposed to specific assets. Mike Henry, who is currently President Coal, will become President Operations of Minerals Australia, Daniel Malchuk will become President Operations of Minerals America, and Steve Pastor will become President Operations of Petroluem.

Current iron ore boss Jimmy Wilson will leave the group, as will petroleum boss Tim Cutt.

What happens now?

Given the outlook for the global economy and commodity prices, it is vital that BHP Billiton reduce expenditures and focuses on strengthening its balance sheet. Ways to do this include cuts to its dividend payments, reductions in capital spending and also further cost reductions throughout the business, which are reasons why the group has restructured its operating model.

Although the prices of iron ore, oil, and even copper have rebounded in recent weeks (with iron ore trading above US$50 a tonne today), there is no guarantee that will last. Many analysts expect the rebound will only be temporary, which acts as a warning for investors wanting to jump into the sector now.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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