CAPITAL MARKETS

BHP eyes further productivity gains

BHP Billiton CEO Andrew Mackenzie outlines further detail on the company's organisational changes...

Kristie Batten
BHP eyes further productivity gains

After posting a massive $US5.7 billion half-year loss last week, BHP surprised the market by announcing the departure of iron ore boss Jimmy Wilson and petroleum head Tim Cutt in favour of two streamlined divisions – Minerals Australia and Minerals Americas.

Mackenzie said the operations would be organised into 10 “large assets”, including groups of mines or fields by commodity or region, to be managed by “long-term operators with increased accountability”.

“The performance of the assets will be lifted by a fully global set of integrated functions, like HR, finance, and supply,” he said.

“By eliminating duplication and layers while increasing spans of control, we will reduce cost by $130 million to $200 million annually.

“We have also created two new centres of excellence - for maintenance, the biggest lever that can drive future safety and operating cost improvement - and projects, to deliver further efficiency in all our capital costs.”

Mackenzie acknowledged the changes would require “significantly fewer people”, but did not elaborate on any job cuts aside from the executive departures announced last week. 
 
 “We will become more agile and more diverse, and better placed to respond to the challenges and opportunities presented by a rapidly changing global marketplace in the new era,” he said.
 
 “We will deliver new levels of safety, productivity, cost and risk management with an accelerated pace of best practice sharing and more rapid adoption of new technology, led by our new chief technology officer.” 

Chief financial officer Peter Beaven will also take over managing strategy.

“He will arbitrate the competition for capital between more cash for shareholders (dividends or buybacks) and organic or inorganic investment, to make sure every dollar counts to maximise returns,” Mackenzie said.

While BHP has recognised around $10 billion of productivity savings to date, Mackenzie indicated the work wasn’t done.

“While we are rightly proud of the significant productivity-led gains we have already banked, we are not satisfied and continue to see further opportunities,” he said.

Mackenzie said the further simplification of the business would further free the assets to focus on safety, volume and cost.
 
 “If we are to continue the required delivery of productivity and growth at the pace of recent years, a new way of working is necessary. We believe we have it,” he said.

Overnight Standard & Poor’s reaffirmed the company’s A credit rating, which was welcomed by Beaven.

“Our commitment to maintain a solid A credit rating through the cycle provides us with access to low-cost funding, financial strength and flexibility - which creates optionality and protection against heightened global volatility,” he said.

BHP shares were up 2.5% to $A15.95 this morning.

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