Another busy day on the Australian bourse. Here’s the latest from some of the companies at the bigger end of town – Woodside Petroleum, Wesfarmers, Telstra and South32.
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Like its smaller local rival, Santos, Woodside (ASX: WPL) had a very tasty 2021 as the surge in global oil and gas prices more than offset some weakness in production.
The Perth-based company, which is in the process of working out how to handle the BHP Petroleum business when it comes aboard midyear, reported a net profit just shy of $US2 billion.
The $US1.983 billion net profit after tax profit was a huge rebound from the impairment and write-down impacted $4.03 billion loss for 2020.
Revenue increased surged 93% to $US6.96 billion as average prices for oil and LG took off, especially in the final quarter of 2021.
Underlying net after tax profit jumped 262% to $US1.620 billion.
A final dividend of $US1.05 will be paid, bringing dividends for the year to $US1.35 a share, more than three times the 38 US cents a share paid in depressed 2020.
All this was greeted warmly by investors who pushed the shares up to their highest close in more than two years of $27.72 – up more than 4% on the day.
The driver for the vastly improved result was an 86% increase in the average realised price for its gas and oil to $US60.3 a barrel of oil equivalent. The average price for oil rose from $US44.4 a barrel to $US79.1 a barrel but the LNG price almost doubled to $US58.1 a million BTUs (British Thermal Units) from $US31.2 a million BTUs.
Unit production cost was $US5.30 a boe, up 10% from 2020.
As the company reported in January, annual production was down 9%, driven by field decline, poor weather and increased maintenance shutdowns.
Woodside CEO Meg O’Neill said in Thursday’s release that Woodside ended 2021 in a strong financial position after a “transformative year.”
“November 2021 could be recorded as the most remarkable month in Woodside’s 67-year history, with the agreement to merge with BHP’s petroleum business and the final investment decisions on the Scarborough and Pluto Train 2 projects.”
A shareholder vote on the BHP deal is planned for May 19 to allow the merger to be completed in early June.
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Shares in Wesfarmers (ASX: WES) slid sharply on Thursday after the company made a big song and dance about cheaper, goods, rising costs and gave the impression that it might be looking to slice profit margins as well after reporting lower profits and cutting its interim dividend.
It was a bit of a confusing message seeing the inflationary pressures management are trying to combat have been around for a while – especially higher oil prices, supply chain problems and the impact of added Covid-related costs.
These have been around for a year or more for retailers in particular to varying degrees.
The talk in media interviews after the results release about low-cost items (and shouldn’t retailers be on the lookout at all times for ways to keep prices low for customers?) helped send the shares down more than 6% during trading as investors focused on the negativity in the message.
The shares ended the day down almost 7.5% at the close at $50.81.
The reason for the slide couldn’t have been the weak revenue growth and lower earnings – especially from Kmart/Target and Officeworks because Wesfarmers had already updated the market on those problems on January 17.
Perhaps it was the trimmed dividend for the half – 80 cents a share instead of the 88 cents paid a year ago after a 14% fall in first half earnings which really didn’t seem enough to hack into the payout to shareholders.
Investors had been told in the January 17 update that to the adverse impact of Covid Delta and then Omicron and their associated lockdowns on its chains, – especially Kmart/Target and Officeworks – would be negative for the half.
Still, a net profit of $1.21 billion for the six months to the end of December wasn’t all that dire even if it came off a 0.1% fall in revenue to $17.7 billion.
Earnings at Kmart and Target slumped 63.4% to $178 million as both retail chains were heavily impacted by supply chain shortages and store closures during the COVID lockdowns earlier in the half. That was not a surprise.
Wesfarmers’ commitment to pay staff who are unable to work due to lockdowns saw additional costs incurred by the retailer (and these added Covid-related costs will be a similar story next week when Coles reports on Monday and Woolworths on Tuesday).
Wesfarmers revealed the leave policy cost it an extra $37 million in the half while the Covid related cleaning, hygiene and security aspects cost an extra $43 million. That cut overall earnings by $80 million in the half year.
Officeworks saw earnings fall 18% to $82 million, which the company attributed to higher costs incurred amid an influx of lower-margin online orders through the half.
What did surprise a little was the weakness at Bunnings. The hardware giant had been Wesfarmers’ star performer through the pandemic as home renovations boomed and the home building industry remained buoyant thanks to government support spending.
Bunnings saw earnings ease 1.2% to $1.26 billion, again due to higher costs from staff payments and supply chain issues.
Wesfarmers’ CEO Rob Scott probably spoke for many others in business when he said in the ASX release that the December half had been the worst period of trade for the business since the start of the pandemic.
“The first half of the 2022 financial year was the most disrupted period for our businesses since the onset of COVID-19, with extended government-mandated store closures and trading restrictions in Australia and New Zealand,” he said.
“Across the group’s retail businesses there were around 34,000 store trading days impacted by trading restrictions, representing almost 20 per cent of total store trading days for the half. This included more than 20,000 store days for which stores were completely closed to customers.”
“In addition, operating costs and stock availability were impacted by ongoing supply chain disruptions and elevated team member absenteeism.”
The start of the June 30 half has also been subdued due to fears over the Omicron outbreak through January.
Mr Scott however said trade has picked up since although Wesfarmers expects supply chain issues to continue to weigh on the business for the remainder of the financial year.
“Supply chain disruptions, elevated transport costs and constraints in domestic labour markets are expected to continue in the second half,” the company said. that is not an uncommon view of 2022 this reporting season.
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Telstra (ASX: TLS) saw its operating earnings fall by almost 15% as the expected fall in one off payments from the national broadband network (NBN) kicked in over the six months to December.
The fall in NBN payments and earnings overshadowed what it claimed was a much stronger performance in its now core mobiles business.
Earnings before interest, depreciation and amortisation (EBITDA) fell 14.8% to $3.47 billion in the six months through December.
Net profit fell a larger 34% to $743 million.
Revenue (excluding financial gains) fell by $1.1 billion to $10.9 billion in the period.
Telstra reaffirmed its fiscal year 2022 profit forecasts, saying the fall in reported EBITDA in the December half was due to expected declines in significant one-off items.
The negativity of these figures helped drop the price more than 4% to $3.90 by Thursday’s close.
Ignoring those figures though Telstra though pointed to underlying EBITDA which rose 5% to $3.5 billion, driven by strong growth in its mobile business.
Guesstimates from analysts suggested that was a little short of market consensus.
“Our reported total income includes declines of around $450 million in one-off NBN receipts and around $200 million in NBN commercial works, while our underlying results demonstrate the benefits of our T22 strategy,” CEO Andy Penn said in the release.
In addition to the impact of the NBN, the declines also reflected one-off gains last year, when the company sold its Velocity and South Brisbane exchange assets and sold, then leased back its Pitt Street exchange in Sydney, he said.
Telstra will pay a fully franked interim dividend of 8 cents per share on April 1. That is made up of 6 cents per share ordinary dividend and 2 cents per share special payments and will see around $940 million paid to shareholders.
Telstra also confirmed its Dividend Reinvestment Plan had been reinstated as it looks to conserve cash.
Telstra said it continued to make progress in its productivity program, with underlying fixed costs down $254 million and total operating expenses down $644 million or 8% in the December half.
Telstra said is on track to deliver a reduction of underlying fixed costs of approximately $430 million for the full year.
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And finally, diversified miner South32 (ASX: S32) has produced what is possibly the outstanding set of numbers for the December reporting season as a perfect storm of positives swept net earnings and dividend sharply higher to record levels.
The company’s interim report on Thursday justified the sharp run up in the shares in recent weeks (they were up 12.4% year to date to Wednesday) as it revealed a record net profit after tax of $US1.03 billion for the December half.
That was after South32 hung onto to report a tiny $US53 million profit in the December, 2020 half.
The soaring earnings were struck on a ‘more sedate’ but still very solid 32% jump in revenue to a record $US4.6 billion for the half as higher returns from alumina, aluminium, coking coal and manganese combined at the right time for the BHP spin-off.
And shareholders saw an 8.7 US cent interim dividend declared, a multiple of the 1.4 US cents per share in 2021 and another record. The higher dividend will absorb $US405 million of the record after-tax profit.
And the buyback was again expanded by the board by $US110 million to $US2.1 billion, leaving $US302 million to be returned to shareholders with a good part of it to be spent up to June 30.
With the higher dividend, shareholders stand to get over half a billion dollars in the next few months from the company.
CEO Graham Kerr said production had been strong in the half at a number of assets.
“We achieved record quarterly production at Brazil Alumina and South Africa Manganese during the period, while Worsley Alumina continued to operate above nameplate capacity,” he said in a statement to the ASX.
“Production guidance at Cannington (silver) has been revised higher by five per cent as the operation prepares to transition to 100 percent truck haulage in the June 2022 quarter, which is expected to bring forward access to higher grade material,” he said.
In the December half South32 completed the divestment of its South African coal assets, bought a 45% stake in the Sierra Gorda copper joint venture and agreed to restart its Brazil aluminium smelter.
Underlying earnings before tax (EBIT) jumped from $US390 million to $US1.004 billion driven by a $1.508 billion bump from higher sales prices.
“Our business is in excellent financial health and we have continued to reshape our portfolio, with the planned acquisition of a 45 per cent stake in the Sierra Gorda copper mine, and further investment in green aluminium.” Mr Kerr said.
“In January we also published a pre-feasibility study for the zinc-lead-silver Taylor Deposit at the Hermosa prospect in the US), confirming its potential to be a sustainable and highly productive underground mine in the industry’s first cost quartile.
“We are excited to progress Taylor as the first development option at our Hermosa project, while continuing our work at other opportunities across our landholding, including exploration targeting copper, and studies to confirm the potential for the Clark Deposit to develop a battery-grade manganese product.
“Looking ahead, we are well positioned to capitalise on current market conditions as countries continue their economic recovery from COVID-19, and into the future as they invest in new infrastructure that is expected to see continued growth in demand for the metals critical for a low carbon future,” he said.
Looking into the rest of 2022 and there was a hint of caution, especially for some operations in Australia.
“We achieved a number of strong production results across our portfolio in H1 FY22, despite higher COVID-19 case numbers and workforce restrictions in many of the jurisdictions in which we operate.
“We have, however, revised FY22 guidance lower for Australia Manganese and Illawarra Metallurgical Coal, which reflects ongoing COVID-19 impacts.
“Separately, FY22 guidance for Cannington has been increased in anticipation of further strong underground mine performance and higher average grades.
“New guidance is provided for Brazil Aluminium, following our decision to participate in the restart of the smelter. We expect to update production guidance for Mozal Aluminium following completion of our agreed acquisition of an additional shareholding,” the company said.
After all the goodies, the shares closed up 1.1% at a record $4.50 after touching a an all-time intraday high of $4.65 during trading.
