BHP profits dip as it warns of contraction outside of China
The world’s biggest mining group BHP has reported a dip in profits as it warns that major world economies outside of China will bear the brunt of the downturn.
The figures
BHP reported attributable profit of $8bn for the year ended 30 June, down four per cent on the previous year.
Profit from operations dipped 11 per cent to $14.4bn, while underlying Ebitda fell five per cent to $22bn. Unit costs reduced nine per cent at BHP’s major assets, which the miner said was helped by foreign exchange, better productivity and improved operations.
The total impact of th epandemic on its operations was $348m pre-tax, including an exceptional charge of $183m. This was largely due to lower volumes at operated assets of $112m and temporary shutdowns at BHP’s non-operated equity accounted investments.
It also faced additional costs incurred at its operated assets such as temporary relocation costs, and screening.
Why it’s interesting
BHP said it was looking at options to exit its thermal coal business, as well as getting rid of its oil and gas assets. Big miners are facing growing pressure from institutional investors concerned about global warming to exit coal production.
BHP also warned that most major world economies excpet China will bear the brunt of the coronavirus-induced downturn this year.
“We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country,” boss Mike Henry said in a statement.
The profit miss is in contrast to peer Rio Tinto which last month beat estimates and touted a “very steep V-shaped” recovery in China.
“Given the state of global economies over the second half of the fiscal year, BHP’s operations have held up relatively well generating good free cash flow from continuing operations,” Joe Healey, investment research analyst at the Share Centre said.
“It’s clear the quicker than expected Chinese recovery has helped steady the ship, however there is no question 2020 is going to remain a challenging year with most major economies around the world expected to contract.”
BHP declared a final dividend of 55 cents per share, worth $2.8bn, bringing the annual payout to $1.20 per share, down 10 per cent year-on-year.
“The fortunes of the UK’s mining behemoths have diverged sharply this year – Glencore has scrapped payouts, Rio Tinto has increased them, and BHP is somewhere in the middle with Anglo American”, said Kit Atkinson, head of capital markets for Corporate Markets EMEA at Link Group. “Income investors are struggling to find safe havens this year.”
Chief executive Mike Henry said divestment could take up to two years.
Shares in the miner fell 1.82 per cent on open.
What BHP said
Chief executive Mike Henry said: “BHP delivered a strong set of results for the 2020 financial year that reflect the strength, resilience and quality of our people and our portfolio. In a year marked by the challenges of the global COVID-19 pandemic, social unrest in Chile and commodity price volatility, we were safer, more reliable and lower cost.”
“BHP’s operations generated robust free cash flow and our balance sheet remained strong, with net debt finishing the year at the low end of our target range.”