While the commodities giant posted a 62% drop in pre-tax profits for the year of $8.6bn it also said it had reduced its net debt by $1.4bn to $24.4bn, allowing it to maintain both it’s A credit rating and progressive dividend policy.
This helped push the shares up over 7% in morning trade, although much of the move higher is likely also linked to a slight jump in sentiment towards miners after yesterday’s capitulation. The FTSE 350 mining index was up just less than 6% on the day.
CEO Andrew Mackenzie was quick to highlight the company’s cash position in his commentary to the results, saying: ““The success of our productivity initiatives generated strong cash flow which supported our dividend commitment, funded continued investment in growth and enabled a reduction in net debt, despite the dramatic fall in commodity prices.”
He added: “While we recorded a sector-leading EBITDA margin of 50%, we will cut costs further and exercise our growing capital flexibility to improve our competitiveness and support our progressive dividend policy through the cycle.”
Over the year, the firm generated $6.3bn in free cash flow on the back of further improvements in “operating and capital productivity” It said it generated $4.1bn in productivity gains, which was two years ahead of target., while its capital and exploration expenditure was lowered by 24% to $11bn.
This commitment to its dividend despite the declines in commodity prices will be music to income investors in the stock, but the outlook for prices remains very poor, and thus there remain significant headwinds, especially as production continues to grow.
As the firm said, production from its core portfolio has grown 27% in the past two years.
“Following a dip in production1 in FY16, we expect annual average volume growth to return towards 5% for the remainder of the decade,” it said.
While it is still positive on the long term outlook for commodity demand as urbanisation and industrialisation continue throughout the emerging world.
With regard to China, the firm said it continues to grow more slowly, in line with the firm’s expectations, but, it added: “We expect near-term volatility to continue as the authorities press ahead with reform in a cautious but sustained manner as they seek to improve the efficiency of capital allocation in the economy while maintaining support for employment.”
The firm increased its full-year dividend by 2% to 124 US cents per share.
