'More cash to you': BHP mounts shareholder charm offensive

BHP has claimed privately that it has support of most big shareholders to retain its share structure status quo. Elliott, however, also says it has significant support to dismantle the dual listing.

If Elliott has the numbers, it can prosecute its agenda at the BHP annual meeting later in the year. Having said that, BHP would capitulate before then if it thought shareholders would force the change.

The $14 billion in shareholder uplift is certainly large enough to attract investors' attention.

But what better way to ensure the small shareholders are in the BHP tent than the promise of lavish returns, while simultaneously warning them that Elliott’s plan would cost their company $1 billion, with no certainty in how to quantify any upside.

So it was entirely appropriate that the chief financial officer, Peter Beaven, was the man on hand to assure the crowd following the webcast that BHP was all about improving their returns - conceding that the company needed to do better in the second half.

He told shareholders that BHP’s board had taken a very thorough look at the Elliott proposal and said that it would be revisited again. But he made it very clear that it was not on the agenda at this time.

The curated selection of questions was kicked off by shareholder Paul, who congratulated the company on a great first half and then wanted to get an update on the outlook for the second half to June 2018.

It was the perfect opportunity for Beaven to confirm that the company would be looking to produce free cash flow of US$7 billion, based on spot prices, on top of the US$5 billion it had generated in the first half. Of course Beaven couldn’t promise higher dividends. He didn’t have to. Shareholders understand that stronger cash flow would make this much more likely. Music to their ears.

'Very good investment'

Indeed, the half-hour question-and-answer session was littered with references to BHP’s desire to maximise returns for shareholders.

Specifically in an answer to a question on the dividend outlook, Beaven went through the capital allocation process that BHP works through - after investment and debt reduction, what's left of its profit goes to shareholders, he explained.

And Beaven noted that because the company was throwing off a lot of cash, its debt levels were within the range it was happy with. This by implication means the amount allocated to the repayment of debt is falling and the amount funnelled back to shareholders will be rising.

He reminded the listeners that while BHP has a policy to pay out at least 50 per cent of its profit in dividends, in the December half it passed on 72 per cent of its earnings to shareholders.

As for 2019 earnings, Beaven says it’s about building on the gains of the second half - more opportunities to squeeze out higher volumes and further cut costs.

Overall his mantra was clear: BHP was looking to "increase value and returns, and increase value of your shares and return more cash to you".

BHP Billiton CFO Peter Beaven: "This will be a very good investment for the very long term."
Photo: Wayne Taylor

Not surprisingly investors were keen to know the timing on the US$10 billion sale of the company's US shale assets - after which shareholders expect a bonus dividend or a share buyback, or both. Beaven suggested the deal should be finalised by the end of this calendar year.

An analyst report on Friday from Credit Suisse suggested that for every US$1 billion of proceeds from the sale, BHP can return 24 Australian cents a share.

Wrapping up the session, shareholder David asked Beaven what was keeping him up at night.

Apart from the safely of the workforce, Beaven said "the world and China and there is a lot of things happening at the moment - Trump and North Korea and so on. These are things you can’t control, and BHP has to be in shape to manage these things.

“I’ll stay up at night... you all should feel comfortable that this (BHP) will be a very good investment for the very long term," he said.