Key Takeaways From Fortescue's FY24 Result
$Fortescue Ltd (FMG.AU)$ released its FY24 results, revealing key metrics: ore mined and processed both down 1%, revenue up 8% to US$18.2 billion, NPAT (Net profit after tax) up 18% to US$5.66 billion, and underlying EPS up 3% to US$1.85 per share. The final fully franked dividend is 89 AUD cents per share, an 11% decrease year-over-year. Despite higher costs due to labor rates and mine plan changes, Fortescue achieved its third-highest annual earnings, buoyed by a stable iron ore price.
Fortescue's energy projects progressed, with significant milestones in green hydrogen initiatives in the U.S. and Australia. CEO Dino Otranto highlighted the achievements, including the lowest-ever injury rate.
For FY25, Fortescue forecasts iron ore shipments of 190-200 million tonnes, hematite C1 costs between US$18.50 and US$19.75 per wet metric tonne, and capital expenditures of US$3.2-3.8 billion for metals and US$500 million for energy. Fortescue's share price has dropped 6% over the past year, while the S&P/ASX 200 Index rose 12.7%.
Higher Costs Bite
Fortescue's reported full-year profits miss analyst forecasts of $6.12 billion due to inflationary pressures and reduced demand from China. The company, led by Chairman Andrew Forrest, has scaled back its green-energy plans and remains less diversified compared to its peers. With China's steel demand plateauing and iron ore prices declining, Fortescue faces challenges. The company cited higher costs for labor, fuel, shipping, and contractors as negative factors. $BHP Group Ltd (BHP.AU)$ also noted that Chinese steel demand has likely peaked at about 1 billion tons per year. Iron ore remains Fortescue's lifeblood, generating around 90% of its operating sales revenue.
The plateauing of steel, in some senses, would spook the market, but for us that plateau is at a much, much higher level than its ever been before," Fortescue's metals division chief, Dino Otranto, said in a Bloomberg Television interview Wednesday. "That bodes well for an organization like Fortescue, whose product suites cater for all parts of the cycle."
Larger-Than-Expected Final Dividend
Fortescue has increased its full-year dividend payout despite a modest profit increase.
Fortescue announced a final dividend of 89 cents per share for FY24, an 11% decrease year-over-year, but bringing the full-year dividend to A$1.97, up 13% from FY23. This represents a 70% payout ratio of the year's net profit, aligning with their policy of paying 50-80% of underlying net profit.
At current prices, this equates to a fully franked dividend yield of approximately 4.75% and a grossed-up yield of 6.8%. Key dates include the ex-dividend date on 4 September 2024, with payment scheduled for 27 September 2024.
Reassess Green Energy Goals
Fortescue has scaled down its green energy ambitions, cutting 700 jobs in July, and reducing its goal of producing 15 million tons of green hydrogen annually by 2030.
The company is also more vulnerable to declining iron ore demand, which makes up nearly 90% of its revenue, compared to its diversified competitors $BHP Group Ltd (BHP.AU)$ and $Rio Tinto Ltd (RIO.AU)$. Fortescue Metals CEO Dino Otranto highlighted the company's third-highest earnings, while Fortescue Energy CEO Mark Hutchinson noted progress in green hydrogen projects in Arizona and Queensland. The company plans to spend up to $US3.8 billion on its mining division and allocate $US700 million in operating expenses and $500 million in capital expenditure for its clean energy business.
Green hydrogen, created by using renewable energy to split water into hydrogen and oxygen, has not yet been commercially produced worldwide. Fortescue has been producing a small quantity at a plant in Western Australia's Pilbara region and made a final investment decision last year on three additional projects, costing approximately $750 million. Despite these challenges, Fortescue remains committed to achieving net zero emissions by 2030, according to Chairman Andrew Forrest.
As we decarbonize Fortescue, we have reflected this focus through our commitment to developing four global green hydrogen projects," Forrest said. These are in the US, Australia, Norway and Brazil, he said.
Source: Bloomberg, AustralianMining, SMH, The Motley Fool, Mining,com
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