August 20, 2019
BHP has posted record dividends to shareholders and higher but not record profits for the year ended June. Profit margins remain huge even as the company continues cost-cutting.
BHP recorded official net profit of US$8.3 billion, up a whopping 124% from US$3.7 billion last year. But the profit jump is inflated by one-off factors last year. If they are stripped out, underlying profit has increased from US$8.9b to US$ 9.1b.
This is still way below the profit recorded at the height of the Resources Boom – US$23.6b back in 2011. However, the dividend payout jumped to an all-time high of US$1.33 per share, which translated to roughly three quarters of all profit.
The big factor driving the profits is still high global iron ore prices from the temporary closure of a lot of mines by Vale in South America following two dam collapses that killed hundreds of people. The first of those – Samarco – involved BHP too, and the costs of dealing with that are still occurring with another US$1.1b allocated.
Iron ore accounted for US$11.1b of EBITDA (cash flow after operating costs) profit while coal came in with US$4.1b of EBITDA profit.
The cash margins BHP enjoys continue to be huge – 65% for iron ore, 64% for petroleum, 46% for copper and 45% for coal.
While BHP is making noises about selling out of thermal coal, NSW Energy Coal (Mt Arthur) still had a very good cash margin of 28%.
The company is still planning on cutting costs, though to date it doesn’t appear to be saving much money through automation and remote operations. The company is planning to spend around US$800m on 500 automated trucks across iron ore and Queensland coal. And BHP is still replying on the “Operations Services” in-house labour contractor model for future “safety and productivity improvements” which is apparently new terminology for cutting wages.
It looks like shareholders are sharing in BHP’s good times via big dividends, while the workers contribute via pay cuts through labour contracting.
Peter Colley,
National Research Director