As expected, BHP has slashed its dividend and abandoned its progressive dividend policy. It’s a sensible move designed to protect the credit rating and has been well received by bond markets. In addition, BHP announced USD3bn in capital expenditure cuts over the next 18 months. Capital expenditure is now expected to be USD7bn in the current year and USD5bn in 2016/17. Both measures aren’t shareholder friendly – they are prudent measures designed to preserve free cashflow generation recognising the ‘new order’ in commodity markets. BHP expects commodity prices to remain low as markets rebalance, with volatility to persist as the Chinese economy transitions. Like most of the resources industry, BHP has been forced to change its entire strategy around capital and shareholder return. We believe the combination of the dividend cut and reduced capital expenditure plans will be enough to keep the rating agencies at bay in the absence of a further significant fall in commodity prices. (VIEW LINK)