BHP Group Ltd (BHP)

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18 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Revenue (US$m)

 42,931

 44,288

-3%

Bloomberg Consensus (US$m)

 42,675

 

 

Underlying EBITDA (US$m)

22,071  

23,158

-5%

Bloomberg Consensus (US$m)

22,243

 

 

Net Profit After Tax (NPAT) (US$m)

7,956

8,306

-4%

Bloomberg Consensus ($m)

8,340

 

 

Dividend (US$)

0.55

0.78

-29%

Higher iron ore prices spur BHP earnings  

What happened?

  • BHP’s full year result was broadly in-line with the average of analyst’s expectations.
  • NPAT fell 4% to just under US$8.0 billion, which includes one off losses totalling US$1.1 billion.
  • Underlying earnings before interest tax depreciation and amortisation (EBITDA) fell to US$22.07 billion, down from US$23.16 billion in the previous corresponding period (pcp).
  • Unit costs were nine per cent lower across BHP’s major assets.
  • BHP will pay a final dividend of 55 US cents per share, fully franked.

Why did it happen?

  • In broad terms, lower prices for metallurgical and thermal coal, petroleum and copper, were offset by higher prices for iron ore, and nickel. 
  • BHP’s main business is that of iron ore production - in the last year the segment delivered 66% of Group EBITDA, with the measure increasing by US$3.4 billion or 31% to US$14.554 billion.
  • The iron ore result was driven by higher production, prices and sales volumes. For example, the average realised price of Iron ore in the period rose by 16% to US$77.36/wmt FOB, up from to US$66.68/wmt, FOB in the previous year. A record annualised production run rate of more than 300 million tonnes (Mt) was achieved during the June 2020 quarter, helping deliver sales of more than 250 million tonnes for the period. 
  • The next most valuable commodity for the miner is Copper, where underlying EBITDA fell by $203 million to $4.34 billion, in part reflecting lower average realised prices, which fell by 5% over the period. Elsewhere, Underlying EBITDA for Petroleum decreased by US$1.9 billion to US$2.2 billion in the period and Underlying EBITDA in the coal business fell by US$2.4 billion to US$1.6 billion.
  • Exceptional items for the year totalled $1.1 billion. The two main contributors to the figure were the cancellation of power contracts at the Group’s Escondida and Spence operations, reflecting a move towards 100% renewable energy supply contracts. In addition there was an impairment relating to group’s Cerro Colorado Copper mine in the Atacama Desert, as a result reduced throughput for the remainder of the licence.

Where to now?

  • In looking ahead BHP highlighted that ‘the potential for re–emergence of COVID–19 outbreaks in key markets or supply jurisdictions is the main source of uncertainty in our year-ahead outlook.’  Although, this view was balanced by the view that the main ‘demand shock’ associated with the pandemic is behind the miner. BHP expects that China and the OECD will return to pre COVID-19 growth rates from around 2023, although developing economies outside East Asia may take longer.
  • BHP stated that ’the world is rapidly changing with the decarbonisation of energy sources”. In response the miner intends to divest a number of coal and petroleum assets including its 50% share in the BHP Mitsubishi Alliance (BMA), it’s 100% share of the New South Wales Energy Coal asset and the 33.3% stake in the independently operated Cerrejón mine in Colombia in addition to an exit from its Bass Straight oil and gas interests through its joint venture with Exxon Mobil.
  • With respect to key commodities; BHP recognised Iron ore prices have been elevated due Brazilian disruptions, although prices will ease as Brazilian supply recovers. BHP sees China’s demand for iron ore in the second half of the decade to be lower as crude steel production ‘plateaus’. The longer term picture for Copper demand is seen as being ‘solid’ helped by the secular electrification, with prices likely to l rise due to a range of factors including a ‘scarcity of high quality future development opportunities after a poor decade for industry-wide exploration’.

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