Fortescue Metals Group (FMG)

CommSec CommSec

 

24 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Revenue (US$m)

12,820

 9,965

+29%

Bloomberg Consensus (US$m)

12,703

 

 

Underlying EBITDA (US$m)

8,375  

6,047

+38%

Bloomberg Consensus (US$m)

8,248

 

 

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

4,735

3,187

+49%

Bloomberg Consensus (US$m)

4,731

 

 

Full Year Dividend (A$)

1.76

1.14

+54%

Execution and higher iron ore prices deliver FMG earnings     

What happened?

  • FMG’s full year result was broadly in-line with the average of analysts’ expectations.
  • FMG delivered record revenue and underlying EBITDA which paved the way to a record NPAT of US$4.735 billion, together with earnings per share of 154 US cents – an increase of 49%.
  • Revenue was US$12.8 billion, 29% higher than the prior year, while underlying EBITDA of US$8.37 billion was 38% higher than FY19. FMG generated strong cashflows during the year, with net cash from operating activities increasing by 47% to US$6.4 billion. 
  • FMG will pay a final dividend of A$1.00 per share, fully franked. The ex-dividend date is 31 August 2020, and the dividend will be paid to shareholders on 2 October 2020.

Why did it happen?

  • The main reason for the robust price environment for iron ore has been the strength of Chinese steel production in the first half of 2020, reflecting stimulus measures to support the Chinese economy as it navigates the Covid-19 pandemic. 
  • The improving demand picture has been accompanied by supply disruptions, particularly in Brazil, which has resulted in drawdowns in iron ore inventories at Chinese ports. These factors contributed to higher prices being achieved for FMG’s iron ore. The average realised price for FMG’s ore rose by 21% over the year, up from US$65/dmt in FY19 to US$79/dmt in FY20. 
  • At the same time, costs were well managed over the period and production rose. Operating or C1 costs - which include those associated with mining, processing, administration and transport - fell by 1% over the year to US$12.94/wmt. 
  • FMG executed well with respect to production, processing, and shipping to deliver record annual shipments totalling 178.2 million tonnes (mt) in FY20, an increase of six per cent compared to 167.7mt in FY19, in the process exceeding the upper end of the group’s FY20 guidance for 177mt.
  • FMG is benefitting from its recent reduction in debt, which means it is conservatively geared at 28%, compared to 45% as recently as 2016. This has been accompanied by improved free cash flow, which has improved by 33% in the last year to $4.449 billion.
  • FMG will pay a final dividend of A$1.00 per share. In addition to the interim dividend of A$0.76 per share, the total payment of A$1.76 per share for the full year means that FMG has paid out 77% of NPAT as dividends, which is at the upper end of the expressed target of between 50% to 80% of NPAT.
 

Where to now?

  • In looking ahead FMG continues to forecast Iron ore shipments of 175 - 180mt, which is consistent with earlier guidance.
  • C1 costs in the coming year are expected to edge higher from the $12.94/wmt result achieved in the last year. FMG expects a result somewhere in the range of US$13.00 - US$13.50/wmt, which is based on a forecast exchange rate of AUD/USD 0.70.
  • Capital expenditure is seen in the range of US$3.0 - US$3.4 billion. The figure includes US$1.0 billion of sustaining, operational and hub development capital, US$140 million of exploration expenditure and studies and US$1.9 - US$2.3 billion for major projects.

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