Fortescue Metals Group HY21 Results (ASX: FMG)

Fortescue Metals Group HY21 Results (ASX: FMG)

Fortescue Metals Group (ASX: FMG) 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

In what was a blowout result for one of Australia’s largest companies, Fortescue Metals Group increased revenue by 44% to US$9.34 billion across the half. Meanwhile, net profit after tax surged even higher, growing by 66% to US$4.08 billion.

The miner has nearly doubled its interim dividend from 1H FY20, with the company declaring that it will pay shareholders a dividend of $1.47 per share for the half-year ended 31 December, 2020. Shares in FMG will trade ex-dividend on Monday, 1 March, before payment follows on Wednesday, 24 March.

Although the stock initially opened lower, likely due to an accompanying Iron Bridge Project update that flagged delays, shares in FMG subsequently rallied to close 1.9% higher at $24.88 per share.

 

Key commentary

Across shipments, earnings and operating cashflow, FMG delivered record half-year results.

Total volume of ore shipped grew by 2% to 90.7 million tonnes, while the volume of ore sold increased by 3% to 90.2 million tonnes. Realised prices for iron ore were 42% higher at US$114 per dry metric tonne, which was an outperformance compared with a 32% rise in the benchmark Platts 62% CFR Index.

Amid higher iron ore prices and cost efficiencies, the company achieved underlying EBITDA of US$6.6 billion for the half, with margins at 71% or US$80 per dry metric tonne. As such, earnings were 57% higher than the prior corresponding period.

In light of the sharp rise in the company’s NPAT, earnings per share were also considerably higher, coming in at $1.84 per share.

Despite significant investment in capital expenditure and a large portion of earnings paid to shareholders in the form of dividends, the company generated US$2.5 billion in free cashflow. Fortescue secured US$4.4 billion in net cashflow from operating activities, while setting aside US$1.5 billion for capex at the likes of Eliwana and Iron Bridge.

In a separate update, the company has noted likely delays and a cost overrun at Iron Bridge. Project costs are currently tracking US$400 million higher than previously anticipated at US$3 billion, while first production is now expected in the second-half of calendar year 2022, up to six months later than originally envisaged

The record dividend of $1.47 per share is 93% higher than this time last year, while also representing an 80% payout ratio with regards to net profit for the half. At the end of the half, net debt had shrunk to just US$110 million.

 

Guidance outlook

Fortescue Metals Group has upgraded its guidance for FY21 iron ore shipments. The company now expects that shipments will range between 178 to 182 mt. This comes as the miner optimises its processes to reduce bottlenecks.

At the same time, due to the impact of the rising Australian dollar, FMG has lifted its forecast for C1 iron ore costs to US$13.50 to US$14 per wet metric tonne. Management are now working with an assumption that the AUD/USD rate will average 75 US cents across the financial year. These forex-related changes have also resulted in an increase in capex guidance for FY21, which is now expected at the upper end of the guided range of US$3 billion to US$3.4 billion.

Moving forward, the company’s dividend policy targets a return to shareholders around the top-end of 50 to 80% of full-year NPAT, with the remainder, 20% of NPAT, set aside for future growth, and to be split evenly between renewable energy growth and other resource growth opportunities.

 

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