BHP Group plc (LON:BHP) has provided its results for the year ended 30 June 2020.
Keeping our people and communities safe
– We had no fatalities at our operated sites during the year and improved Total Recordable Injury Frequency.
– Our commitments to safety and social value have enabled us to operate reliably and safely during the COVID-19 pandemic. We had the support of our workforce, Traditional Owners, communities, governments, customers and suppliers.
Maximise cash flow: Robust earnings and free cash flow generation despite COVID-19
– Attributable profit of US$8.0 billion and Underlying attributable profit(i) of US$9.1 billion broadly in line with the prior year.
– Profit from operations of US$14.4 billion and Underlying EBITDA(i) of US$22.1 billion at a margin(i) of 53%, with unit costs reduced by 9% at our major assets due to foreign exchange, better productivity and improved operating stability.
– Net operating cash flow of US$15.7 billion, above US$15 billion for the fourth consecutive year, and free cash flow(i) of US$8.1 billion.
Capital discipline: Major projects tracking well, early stage options added and balance sheet remains strong
– Capital and exploration expenditure(i) within guidance at US$7.6 billion. We now expect capital and exploration expenditure to be approximately US$7 billion for the 2021 financial year, reflecting the proactive deferral for value of a number of our petroleum projects, and approximately US$8.5 billion for the 2022 financial year.
– Our six major projects under development are progressing well, with first production from Atlantis Phase 3 achieved in July 2020 and the Spence Growth Option and South Flank expected to deliver first production within the next 12 months. Jansen is now expected to be presented to the Board for a Final Investment Decision in the middle of the 2021 calendar year following delays to completion of the shafts. These delays are a result of initial challenges with placement of the shaft lining, since rectified, and due to impacts from our COVID-19 response plan.
– We continue to advance our exploration programs in petroleum, copper and nickel, with results of the third phase of the drilling program completed at our Oak Dam copper discovery in South Australia currently under analysis. We have also added to our early stage optionality in nickel with the acquisition of the Honeymoon Well tenements in Western Australia.
– Net debt at US$12.0 billion, compared to US$9.4 billion at 30 June 2019, which is at the low end of our target range of US$12 to US$17 billion. The application of IFRS 16 Leases has increased net debt(i)(1) by US$1.6 billion since 30 June 2019.
Value and returns: Consistently high cash returns, US$6.1 billion of total announced returns to shareholders
– To further enhance our portfolio for value, risk and returns, we intend to concentrate our coal portfolio on higher-quality coking coals, and are looking at options to exit BMC, New South Wales Energy Coal (NSWEC) and Cerrejón.
– The Board has determined to pay a final dividend of 55 US cents per share or US$2.8 billion, which includes an additional amount of 17 US cents per share (equivalent to US$0.9 billion) above the 50% minimum payout policy. Total dividends announced of US$1.20 per share, equivalent to a 67% payout ratio.
– Underlying return on capital employed(i) remained strong at 17%.
|Year ended 30 June||2020US$M||2019US$M||Change%|
|Basic earnings per share (cents)||157.3||160.3||(2%)|
|Dividend per share (cents)||120.0||133.0||(10%)|
|Net operating cash flow||15,706||17,871||(12%)|
|Capital and exploration expenditure||7,640||7,566||1%|
|Underlying attributable profit||9,060||9,124||(1%)|
|Underlying basic earnings per share (cents)(i)||179.2||176.1||2%|
|Profit from operations||14,421||16,113||(11%)|
|Underlying attributable profit(i)||9,060||9,466||(4%)|
|Net operating cash flow||15,706||17,397||(10%)|
(1) The definition of net debt has changed to include the fair value of derivatives used to hedge foreign exchange and interest rate risk related to cash and borrowings. Prior period comparatives have been restated to reflect the change in net debt calculation. Net debt was restated from US$9.2 billion to US$9.4 billion as at 30 June 2019.
IFRS 16 became effective from 1 July 2019. As at 30 June 2020, the impact from the application of IFRS 16 Leases on net debt was US$1.6 billion. Further detail is included in the Alternative Performance Measures section.
Results for the year ended 30 June 2020
BHP Chief Executive Officer, Mike Henry:
“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. We have announced a final dividend of 55 US cents per share, bringing shareholder returns to US$6.1 billion for the full year.
Our workforce operated with purpose, focus, speed and decisiveness, and I am proud of their achievements. We are grateful for the ongoing support of our communities, Traditional Owners, governments and business partners. In line with our commitment to social value, we have in turn sought to support them through this difficult period by creating 1,500 jobs, making early payments to small, regional and indigenous suppliers and contributing more than US$75 million to community, health and social programs.
We expect most major economies will contract heavily in 2020, China being the exception. Recovery will vary considerably by country. Our diversified portfolio and high-quality assets position us to continue to generate returns in the face of near-term uncertainty, even as we secure and create the options in future-facing commodities that will allow us to sustainably grow value in the long-term.
Our development projects and exploration programs are progressing well and in line with our strategy. We have secured, and will continue to grow, options in copper and nickel, where increasing demand and our capability give us competitive opportunities. We are moving to concentrate our coal portfolio on high quality coking coals, with greatest potential upside for quality premiums as steel makers seek to improve blast furnace utilisation and reduce emissions intensity. In oil and gas, we will continue to invest in opportunities that are resilient under a range of price scenarios, and which are aligned to our strengths. We will seek to divest oil and gas assets that are mature or which are likely to realise greater value under different ownership. This approach to actively managing our portfolio for value, risk and returns over multiple time horizons will yield superior returns for our investors and greater value for our partners and communities. Our ability to do so will be underpinned by our distinctive culture and organisational capability, our strong balance sheet and disciplined approach to capital allocation.
I have created two new roles on BHP’s Executive Leadership Team, appointing Laura Tyler as Chief Technical Officer and Johan van Jaarsveld as Chief Development Officer. These appointments will accelerate our agenda to become safer, lower cost and more productive, and to develop a portfolio that is fit for the future with opportunities for long-term growth. Ragnar Udd and Caroline Cox will also join the team as President Minerals Americas and Chief External Affairs Officer, respectively, replacing Danny Malchuk and Geoff Healy. Our company is safer and stronger because of Danny and Geoff’s outstanding leadership and I thank them for their enormous contribution to BHP.
Our products are essential for the world and the future. I am confident our portfolio and approach will continue to support attractive value and returns for decades to come.”
Leading delivery of social value
Safety and sustainability
Our priority is the safety, health and wellbeing of our workforce and the communities in which we operate and we have demonstrated this throughout the COVID-19 pandemic.
Our operated assets have continued to operate safely, with additional protocols in place to protect our workforce and communities from the spread of COVID-19, in line with guidelines from local and national government bodies and expert health advice in the geographies where we operate.
Our support for local communities has been a critical area of focus in BHP’s response. We have provided significant support to communities in Australia. We announced the A$50 million Vital Resources Fund in March 2020. It is being used to support regional communities in our areas of operation and includes funding for essential community and health services in the Pilbara, Bowen Basin, Hunter Valley and South Australia. We have implemented protective measures for the local communities and we have ceased all face-to-face contact with Traditional Owners to protect vulnerable members of their communities. We also hired an additional 1,500 people into temporary roles to support our workforce operating across Australia.
In Chile, we established a US$8 million program to support the public health response to COVID-19 at the national and regional level, with a focus on increasing testing capacity and tracing, the provision of medical equipment, and the support the communities where we operate and vulnerable populations through hygiene supplies and water, and public spaces sanitation. An additional US$3 million fund was established for specific local community programs. In North America, a US$2 million fund was established to support local and regional health and wellness programs in communities in close proximity to our operations.
We shortened payment terms globally for our small, local and Indigenous suppliers, to further assist them and local communities to manage through the financial pressures of COVID-19.
In parallel with leading through the challenges faced during the year, we are continuing to take action on helping to address the urgent challenge of climate change. In October 2019, we announced four new renewable power contracts for Escondida and Spence that will replace existing electricity supply contracts. The contracts will deliver lower energy prices and will displace approximately 3 Mt CO2-e per year from BHP’s Chilean operations from the 2022 financial year. We aim to supply Escondida and Spence’s energy requirements fully from 100 per cent renewable energy sources from the mid-2020s. We are also minimising our use of fresh water. Escondida has eliminated water drawdown from aquifers for operational supply 10 years ahead of its 2030 target. This was made possible by the completion of the Escondida Water Supply Expansion project in December 2019, which further increased total desalinated water capacity. We have also realised better water consumption efficiency through a program of continuous improvement.
Work is progressing on the implementation of the climate change initiatives announced in July 2019. We are setting a 2030 science-based target for Scope 1 and 2 emissions, to set the trajectory towards our 2050 goal of net-zero operational emissions, as well as setting Scope 3 emissions goals. We are implementing the US$400 million Climate Investment Program, to develop low carbon technologies and invest in nature-based solutions to support reduction in emissions from our operations as well as those generated from the use of our resources. Furthermore, we are updating our climate portfolio analysis, and clarifying and strengthening the link between performance against emissions targets and BHP’s executive pay plans. We will announce these in our Climate Change Report to be published on 10 September 2020.
The BHP Tailings Taskforce, that we established last year, continues to oversee improvement and assurance for our operated tailings storage facilities, including a focus on short term risk reduction, strengthening emergency response, enhancing preventative controls, improving governance processes and leading ongoing participation with the International Council of Mining and Metals and others across the industry on the implementation of the new Global Industry Standard for Tailings Management. The new international standard provides a framework for safer tailings management and an ambition to achieve the goal of zero harm to people and the environment, and we are taking a proactive approach to ensure we meet all of the requirements that have been set out in the standard. We fully support the transparency and independence of the review process, which has brought together multiple stakeholders across a range of disciplines to achieve a global industry standard.
In 2018 we established BHP Operations Services to provide a highly skilled workforce of permanent employees able to work across BHP’s Australian operations. We have since created nearly 3,000 permanent jobs, over and above approximately 1,500 other new roles in Australia, with Operations Services now deployed at 20 locations across Western Australia Iron Ore (WAIO), Queensland Coal and NSWEC. Deployments are achieving better safety, productivity and efficiency outcomes.
In May 2020, Operations Services launched the BHP FutureFit Academy, a new national training program, developed to provide a customised training pathway utilising nationally recognised curricula, for trade apprenticeships and maintenance traineeships. The first two FutureFit Academy campuses opened in Mackay in Queensland and Perth in Western Australia, with graduates to be deployed to an Operations Services team from the 2021 calendar year.
The BHP Foundation, which is funded by BHP Group, continues to work with partner organisations to address some of the world’s most critical sustainable development challenges, with a focus on resource governance, environmental resilience, and education equity. Further information can be found at: bhp.com/community/bhp-foundation