BHP’s demerger set to create shareholder value

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“BHP Billiton is becoming a simpler, more productive company and the demerger proposal we have announced today is an important step forward,” said Andrew Mackenzie, chief executive officer (CEO) of the global resources company, [DATA BIL:BHP Billiton plc].

He added that the new company will be independent and based on a selection of high quality aluminium, coal, manganese, nickel and silver assets.

“Separating these businesses via a demerger has the potential to unlock shareholder value by allowing BHP Billiton to improve the productivity of its largest businesses more quickly and by creating a new company specifically designed to enhance the performance of its assets.”

(READ MORE: Demerger on the cards for BHP Billiton)

The group is set to focus on its core assets such as long-life iron ore, copper, coal, petroleum and potash basins while aiming to reduce costs so that an average rate of return of greater than 20 per cent is achievable,.

Capital and exploration expenditure is expected to decline by 14.8 billion US dollars in 2015 and be no more than 14 billion US dollars should the proposed demerger be implemented

“With a simpler portfolio, we are targeting at least another 3.5 billion US dollars of productivity-related gains by the end of the 2017 financial year,” added Mackenzie.

Graham Kerr, currently the chief financial officer of the company will be appointed as CEO of the new company, which will have assets in five countries and more than 24,000 employees and contractors worldwide.

The company will consist of BHP’s manganese business, the integrated aluminium division, Energy Coal South Africa, Australian based Illawarra Coal and Columbian based Cerro Matoso nickel.

For the year ended 30 June 2014, the group reported a 10 per cent increase in underlying attributable profit to 13.4 billion US dollars while underlying EBITDA rose by seven per cent to 32.4 billion US dollars.

(WATCH VIDEOBHP Billiton H1 underlying profit up 31% )

This resulted in increased free cash flow of 8.1 billion US dollars with the group’s balance sheet reflecting a net debt of 258 billion US dollars for a gearing ratio of 23 per cent.

Basic earnings per share rose by 23.3 per cent from 211 cents to 260 cents while a dividend of 121 cents per share was declared, a 4.3 per cent increase from the 2013 period.

(READ MORE: BHP Billiton delivers strong performance)

The group also reported a record low Total Recordable Injury Frequency of 4.2 million hours worked and zero fatalities suffered during the period.

BHP’s productivity improved by nine per cent with solid performances at its Western Australian Iron Ore and Queensland Coal operations, both increasing output by over 20 per cent.

Also, the group’s onshore US business delivered a 73 per cent increase in petroleum liquids production.

BHP expects to generate group production growth of 16 per cent over the 2015 financial year.

(READ MORE: BHP Billiton delivers high production figures)

“With robust volume growth and further productivity gains expected, we remain confident in the outlook for the Group,” said Mackenzie.