China’s demand, iron ore prices, copper, energy investment, and climate changes were not the most important outcomes from the Australian shareholders’ annual meeting of BHP yesterday.
As vital as these issues are to the company’s future, for shareholders, who have a far shorter time frame, it was the assurance that the company’s dividends will not be part of the capital review revealed by the company’s new chair, Ken MacKenzie.
That means BHP will not be following Telstra in cutting its dividends (or GE in the US this week).
BHP shares closed at $27.27 on the ASX yesterday – down a fraction. But if the meeting had not heard the assurances on the dividend, then the shares would have been sold off heavily.
So the assurance was a big positive for the share price.
BHP boosted dividends in 2016-17 to with a final dividend of US43 cents (over 54 cents Australian), compared with last year’s final payout of just US14 cents a share. That was after a strong recovery in earnings $US6.7 billion ($A8.4 billion), up sharply on last year’s result of $US1.2 billion.
And, in a further boost for shareholders, this review will not pass judgement on the company’s individual projects, meaning the possibility of big impairment costs has lessened.
In one of his first acts as chairman, Mr McKenzie set up a review of the way BHP spends its money – which some in the markets saw as a way perhaps of slicing dividends.
In doing so, Mr McKenzie indicated he saw potential to “strengthen” the capital allocation framework established by CEO, Andrew Mackenzie.
That framework prioritises spending on maintenance, debt reduction and ensures that at least 50% of underlying attributable profit be paid out to shareholders as dividends every six months.
But at the AGM, Mr MacKenzie sought to clarify the aim of the review, saying the existing allocation framework was “terrific” and the miner’s dividend policy would not be changed.
"I think we can rule out changes to the dividend policy," he said.
“This business generates a lot of cash through virtually all points of the commodity cycle, but what we do with this cash is going to be a key determinant of how much value we create for shareholders going forward, so capital allocation is really important. It was the new chair’s first annual meeting in Australia since taking the job in September.
Mr MacKenzie also told shareholders that it would maintain a "relentless focus" driving value and returns for its army of shareholders.
Mr MacKenzie made his comments about focus on shareholder value after telling shareholders that he had recently completed a "listening tour" of investors in eight countries.
On this tour, he said he learned that BHP’s foundations were strong.
"But there are areas where we need to sharpen our focus, areas with potential to be better, and areas we can build on. We must maintain a relentless focus on driving value and returns. We must never lose sight of this commitment to our shareholders, particularly in the context of the commodity cycle.
"With a sharpened focus in some key areas, I am certain BHP will continue to make a difference, remain competitive and create shareholder value," he said. In his address, CEO MacKenzie that the company remains confident about China, telling the meeting that the country’s strong infrastructure program will continue to drive demand for steel, boosting prices for BHP’s resources including iron ore, copper and coal.
"Housing and automotive demand will weaken. Infrastructure will remain strong, reinforced by the Belt and Road Initiative. The Communist Party’s drive to improve safety and the environment, and the efficiency of their industry, especially steel, will result in high premiums for the superior quality of our iron ore, coal and copper concentrate.
“Against this backdrop, we are confident we have the right assets, in the right commodities, through the steps we have taken over the past five years to transform our company,” he said.
