Fortescue Metals Group FY20 Results (ASX: FMG)

Fortescue Metals Group FY20 Results (ASX: FMG)

Fortescue Metals Group (ASX: FMG) has reported its full-year results for FY20. 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

Rounding out a successful FY20 for the iron ore miner, FMG has reported record revenue for the financial year, surging 29% to US$12.8 billion.

Meanwhile, reported net profit after tax increased 49% to US$4.7 billion, and underlying EBITDA reached US$8.4 billion, a result that was 38.5% higher than the prior corresponding period.

Due to the strength of the result, the company has declared a record final dividend for shareholders. A fully-franked final dividend of $1.00 per share will be distributed to FMG investors, with the stock set to trade ex-dividend on Monday, August 31st.

FMG shares traded 3.2% higher after the results, with the dividend placing it among the highest dividend-paying companies on the market.


Key commentary

With various tailwinds in its favour, FMG achieved numerous records across FY20, including shipments, revenue, earnings and cashflow.

Revenue strength came from improvements in volume and prices. Total shipments of iron ore across the financial year rose 6% to 178.2 million tonnes, while the iron ore price also increased markedly compared with FY19. Throughout FY20 the company received an average realised price of US$79/dmt, which was 16% higher than the average Platts 62% CFR Index, and a 21% year-on-year improvement. Due to the strength of the iron ore price, FMG improved its EBITDA margins from 61% to 65%, the equivalent of US$52 per dry metric tonne of ore shipped.

In turn, net cashflow from operating activities came in at US$6.4 billion, while free cashflow totalled US$4.4 billion, even accounting for US$2 billion of capital expenditure towards sustaining capital, development capital, and major projects such as Eliwana, Iron Bridge and Energy.

As another sign of its efficiency, the company managed to further reduce its unit cost of operations, with its C1 cost easing 1% to US$12.94/wmt.

Net debt has continued to decrease, with the company’s balance sheet now showing just US$258 million of net debt as at June 30, 2020. There was US$4.9 billion of cash on hand at EOFY, with gross debt of US$5.1 billion. Gross debt to EBITDA represents 0.6x and net debt to EBITDA is less than 0.1x.

The company’s final dividend of $1 per share is in addition to the $0.76 per share it declared in the first half of FY20, representing a payout ratio of 77% of full-year NPAT.


Guidance outlook

Management has reiterated its recent guidance for FY21, which is headlined by an estimated 175-180 mt of iron ore shipments in the financial year ahead. C1 costs are anticipated to be slightly higher, in the range of US$13-13.5/wmt.

The company expects to incur capital expenditure of US$3-3.4 billion, including US$1 billion of sustaining, operational and hub development capital, US$140 million of exploration expenditure, and US$1.9-2.3 billion for its major projects mentioned earlier.


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