BHP HY21 Results (ASX: BHP)

BHP HY21 Results (ASX: BHP)

BHP (ASX: BHP) has reported its first-half results for FY21. We take a look at the company’s headline figures, key commentary and guidance outlook, plus review the share market’s reaction across the trading day.

 

Headline result

Over the first half of FY21, BHP saw its revenue leap by 15%, reaching a total of US$25.6 billion.

Despite the large increase in revenue, the company’s statutory profits declined 20% to US$3.9 billion, although this was largely dragged down by coal-related impairments, whereas underlying profit came in at US$6 billion.

BHP has upped its interim dividend to a new record, with shareholders set to receive a dividend of US$1.01 per share, well ahead of consensus estimates that had the figure at US$0.84 per share. Shares in BHP will trade ex-dividend on Thursday, March 4, while proceeds will be paid to investors on Tuesday, March 23.

Today’s results helped spark a small rally in the company’s share price, as the stock closes in on the all-time high set last month. BHP shares closed 2.7% higher at $47 per share.

 

Key commentary

The single-biggest driver for the company’s earnings were buoyant iron ore prices, which not only hit multi-year highs during the period, but have since sustained these levels. Resilient demand for the commodity comes as China’s steelmakers go into overdrive, while Brazilian exports of iron ore remain under pressure as the nation’s largest exporter, Vale, faces a barrage of issues.

Across the half, BHP realised an average sale price for its iron ore that was US$103.78/wmt, 33% higher than 12 months earlier, something that the miner took advantage of thanks to record shipments from Western Australia, totalling 144.1 million tonnes.

Underlying EBITDA of US$14.7 billion came in at a margin of 59%, with strong operational performances in iron ore and copper ensuring sizeable net operating cash flow, US$9.4 billion, and large free cash flow, US$5.2 billion. Underlying return on capital employed increased to 24%.

Although iron ore was a shining light for the company, BHP faced a number of headwinds across the half. The miner’s coal division was exposed to a temporary drop in prices amid the ruction caused by trade tension between Australia and China, not to mention state border and pandemic restrictions that inhibited operations. In total, BHP’s NSW and Queensland coal operations took a hit to the tune of more than US$500 million during the half.

Statutory profit for the six months of $US3.9 billion includes $US2.2 billion of impairments and charges that were announced to the market back in January. Of this amount, US$1.6 billion relates to the company’s energy coal assets including those that it is now trying to sell, US$200 million concerns COVID-19 costs, and the remainder is associated with the Samarco dam failure in Brazil.

BHP’s record interim dividend comes hot on the heels of last year’s prior record, however, this one is US$0.36 per share higher.

 

Guidance outlook

Looking forward, iron ore prices have since increased drastically compared with those realised by the company during the half. BHP expects China’s steel industry to produce over a billion tonnes of steel this year, accommodating near-term prices, before a moderation in the medium term as the supply-demand dynamic shifts.

In the meantime, BHP is looking to raise its iron ore export limit from 290 million tonnes per annum to 330 million tonnes per annum. The WA government is set to rule on the matter, although BHP has begun to map out options for a low-cost expansion to 310 million tonnes per year, whereas the upper end of the target would require a significant increase in new mine development expenditure.

Management also believe coal prices are likely to moderate from their recent rebound as the Chinese government’s ban on Australian coal leads to higher competition to enter other markets.

Guidance for capital and exploration expenditure has increased by US$0.3 billion to US$7.3 billion due to a stronger Australian dollar, while FY22 capex guidance remains unchanged at US$8.5 billion.

 

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