Forget the interim results for Fortescue Metals Group (FMG) delivered yesterday and the claimed ‘beat’ on market forecasts.
The $US331 million might have been $US2 million better than the market estimates (which is really nothing in the scheme of things when you are talking about hundreds of millions of dollars), but the real story is that the figure was down 81% on the $US1.72 billion earned in the first half of 2013-14.
And the interim dividend of 3 Australian cents a share was only a third of the 10 cents a share paid a year ago.
Revenue was more than $US1 billion lower for the latest half at $US4.858 billion.
It was the sharply lower result markets had been expecting the company to have, so despite some early strength in the share price, it’s not a surprise that investors turned against the stock and sold it down 4.8% to close at $2.55.
FMG 1Y – Fortescue under pressure
Iron ore prices halved over the past year and Fortescue’s average received price fell from $US124 a tonne in the December half of 2013 to $US66 a tonne in the December half.
Fortescue managed to partially offset that by lifting exports 57% and cutting production costs by around 9% – as outlined in the December quarter and half year production report last month.
Fortescue’s net debt rose over the past six months from $US7.2 billion on June 30 to be $US7.47 billion as at December 31. Net debt was lower than the $US8.6 billion on December 31, 2013.
Cash on hand almost halved over the year to just under $US1.6 billion.
The result was also notable for $US1.2 billion worth of "customer prepayments" during the half.
Those prepayments represent money Fortescue has received for iron ore shipments that will be delivered over the next two years.
The prepayments are almost $US1 billion more than the $US250 million worth of customer prepayments received in the December 2013 half year.
Fortescue yesterday stressed the prepayments does not pass through its profit and loss account until the iron ore is delivered to customers.
The money is included in the total cash inflow tally of $US5.1 billion ($3.9 billion really), but is held on the balance sheet as unearned income.
Fortescue had to deliver $US300 million worth of iron ore during the past six months to settle prepayments that were made in previous years.
This means the company is facing shipping up to $US500 million worth of ore (around 10 million tonnes current prices of just over $US65.10) a year for the next two years.
It is not known whether these are full payments or part payment, with the remainder to be settled according to spot or index prices when the shipments are made.
