BHP Group Ltd annual report, Q4 FY2023

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BHP Group Limited — FY2023 Form 20-F

Reporting period: Year ended 30 June 2023, not 2022 Q4. The filing is an annual report prepared under IFRS in US dollars. OZ Minerals was acquired on 2 May 2023; its financial and production results are included from acquisition, unless otherwise stated.

Financial and operating performance

  • Revenue: US$53.8 billion, down 17% from US$65.1 billion, mainly due to lower realised iron ore, metallurgical coal and copper prices and the prior-year BHP Mitsui Coal divestment.
  • Profit: Profit after tax from continuing operations was US$14.3 billion; profit attributable to BHP shareholders was US$12.9 billion, down from US$30.9 billion. Underlying attributable profit was US$13.4 billion, down from US$23.8 billion.
  • EBITDA and returns: Underlying EBITDA was US$28.0 billion, down from US$40.6 billion. Underlying ROCE fell to 28.8% from 48.7%. Higher inflation and lower commodity prices weighed on results.
  • Cash flow and investment: Net operating cash flow was US$18.7 billion, down from US$32.2 billion. Capital and exploration expenditure was US$7.1 billion; reported free cash flow was US$5.6 billion. Investing outflows included the US$5.9 billion OZ Minerals acquisition.
  • Debt and liquidity: Net debt rose to US$11.2 billion from US$0.3 billion; gearing increased to 18.7% from 0.7%. Cash was US$12.4 billion and interest-bearing liabilities US$22.3 billion. A US$5.5 billion revolving credit facility was undrawn; management said working capital was sufficient. Moody’s upgraded BHP to A1/P-1, stable outlook; S&P remained A-/A-1, stable outlook.
  • Dividends: The Board determined FY2023 dividends of US$1.70 per share, or US$8.6 billion in total, including a final dividend of US$0.80 per share. The policy sets a minimum payout of 50% of underlying attributable profit from continuing operations.
  • Production: Copper production was 1.72 million tonnes, iron ore 257 million tonnes and coal 72.2 million tonnes; Nickel West produced 80,000 tonnes. WAIO, Olympic Dam and Spence achieved record annual production.

Changes versus the prior year

  • Lower realised prices drove much of the decline in revenue and earnings. Underlying EBITDA’s disclosed price impact was negative US$9.3 billion; inflation reduced it by US$1.4 billion.
  • Operating cash flow declined by US$13.5 billion. Net debt increased substantially, principally reflecting the OZ Minerals acquisition, dividends and investment outlays.
  • FY2022 attributable profit included a large exceptional gain, mainly from the merger of Petroleum with Woodside. FY2023 attributable profit included an exceptional after-tax loss of US$0.5 billion, including Samarco-related impacts and Chilean tax reform. This limits direct comparison of reported profit.
  • OZ Minerals added copper and nickel assets, including Carrapateena, Prominent Hill and West Musgrave. The acquisition increased total assets to US$101.3 billion from US$95.2 billion.

Outlook, commentary and material risks

  • FY2024 production guidance: Copper 1.72–1.91 million tonnes; WAIO iron ore 250–260 million tonnes on BHP’s share basis; BMA coal 28–31 million tonnes; NSW Energy Coal 13–15 million tonnes; Nickel West 77,000–87,000 tonnes. Samarco production guidance is 4.0–4.5 million tonnes on BHP’s share basis.
  • Capital spending: Capital and exploration expenditure is expected to be approximately US$10 billion annually in FY2024 and FY2025, with an average of about US$11 billion annually in FY2026–FY2028. Figures are subject to exchange-rate movements.
  • Growth projects: Jansen Stage 1 was 26% complete at year-end; first potash production is expected in late CY2026, with Stage 2 feasibility work targeted for FY2024. WAIO aims to exceed 305 million tonnes per year over the medium term and is studying a potential increase to 330 million tonnes per year.
  • Management commentary: Management cited cost inflation, global economic volatility and geopolitical uncertainty, while emphasizing productivity, cost control and portfolio growth. BHP plans to sell its Daunia and Blackwater coal mines and said it would not pursue further Queensland coal growth investment given the higher royalty regime.
  • Safety and workforce: Two employee fatalities occurred in FY2023; one investigation remained ongoing at the filing date. The company reported a 13% increase in high-potential injury frequency and a 9% increase in total recordable injury frequency. A payroll review found historical leave-deduction and allowance issues; remediation was estimated at US$280 million pre-tax and included in FY2023 results.
  • Legal and operational exposures: Samarco-related claims and remediation remain material; BHP said it could not reliably estimate possible outcomes for all proceedings. A UK group action trial concerning the Samarco dam failure was scheduled for October 2024. BHP also disclosed litigation concerning water impacts in Chile and continuing anomalies at Spence’s tailings storage facility, with production guidance subject to remediation.
  • Other risks: Commodity-price volatility, inflation, royalties and taxes, permitting, weather disruption, labour relations, climate transition and physical risks, cybersecurity, tailings integrity and community or Indigenous impacts could affect costs, production, asset values and returns. Forward-looking statements are subject to significant uncertainty.

Most important facts for investors to verify

  • Whether FY2024 production and cost guidance is achieved, particularly copper, WAIO and BMA.
  • How commodity prices, inflation and royalties affect cash generation, margins and the dividend payout.
  • OZ Minerals integration, the final purchase-price allocation and delivery of anticipated synergies and growth options.
  • Progress and ultimate cost of Samarco remediation, the judicial reorganisation and related litigation, including the UK proceedings.
  • Spence tailings-facility remediation, associated production constraints and any resulting changes to guidance.
  • Final payroll remediation costs and findings from the review of payroll systems.
  • Jansen project cost, schedule and approval decisions for Stage 2, alongside the increase in net debt and liquidity position.