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Anglo American - record profits as prices rise

Full-year revenue grew 63% to $41.6bn.

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Full-year revenue grew 63% to $41.6bn. That was driven by broad growth across the portfolio as prices for key commodities were higher. Underlying cash profits (EBITDA) more than doubled to $20.6bn, beating analyst expectations.

The board announced a final dividend of $1.18, and a special dividend of $0.50.

The shares were broadly flat following the announcement.

View the latest Anglo American share price and how to deal

Our view

Anglo have followed in their peers' footsteps, coming out at the full-year stage with record profits and bumper shareholder returns.

Supply constraints, government stimulus and the reopening of economies have combined to boost several key commodity prices over the year. However, prices have reined in a touch since the highs seen at the half-year and there's no guarantee they'll stay high. Eventually, supply bottlenecks should work themselves out and economies will hopefully return to normal.

We're unlikely to see this level of profits again for quite some time, but that's not cause for concern, simply part and parcel of being in an industry that's reliant on commodity prices. Whilst prices may be off their highs, they're looking likely to stay comparatively elevated for some time, meaning markets are expecting good things for now.

There are a few Anglo-specific things we admire too.

Its strategy of diversifying between industrial and consumer products makes sense. Demand for industrial commodities, like iron ore and coal, is very economically sensitive because when conditions are tough plans for new factories and skyscrapers quickly get scrapped. Consumer demand is generally more reliable, helping to pick up the slack in cyclical downturns.

That's not to say that a severe economic downturn wouldn't dent Anglo's performance, of course.

That's why financial resilience remains key.

Net debt now only equates to a fraction of cash profits. And at this level of debt, that'll still be the case even if profits come down in the future.

The coal demerger will be welcomed by some too - thermal coal is a particularly dirty fuel. Hiving it off from the rest of the group means Anglo can boost its environmental credentials, which could mean more eco-conscious investors would feel comfortable including Anglo in their portfolios. Operationally speaking, coal was already quite a small part of the whole, so this shouldn't change the status quo much.

Over the long term, Anglo's diversified approach means it isn't beholden to the fortunes of a single commodity price. The group already has its fingers in the pies of assets that contribute to the global de-carbonisation effort, which should be a longer term growth driver too. But we shouldn't look past the fact the near term remains uncertain - if highly lucrative for the time being. This is important to bear in mind because, with a policy to pay out 40% of profits, lower profits mean lower dividends.

Anglo American key facts

All ratios are from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Full Year Results (underlying profits)

Diamond division De Beers saw revenue rise 66% to $5.6bn, driven by a 56% increase in sales volumes and a boost in pricing to $146 per carat. Diamond jewellery sales in the US and China came in ahead of pre-pandemic levels. Cash profits rose to $1.1bn, up from $417m the previous year. Capital expenditure rose 48% to $565m.

Copper revenue grew 53% to $6.4bn off the back of higher prices, with the average realised copper price up 52% at $4.5 per lb. Volumes sold were flat year-on-year and unit costs rose slightly. Cash profits more than doubled to $4.0bn. The Quellaveco project is due to begin production mid-way through the year. Capital expenditure increased by 23% to $1.8bn.

Nickel revenue grew 33% to $710m as prices increased 37%. Production and sale volumes decreased low single digit percentages, but due to higher prices, cash profits increased 55% to $320m.

In Platinum Group Metals, a 13% increase in production and sales volumes up 82% meant revenue more than doubled to $14.5bn. Price rises were weighted toward the first half where the global economic recovery and positive sentiment on the automotive industry provided tailwinds. Cash profits grew from $2.6bn to $7.1bn and capital expenditure increased by 57% to $894m.

Iron Ore revenue increased 40% to $11.1bn as pricing increased 41% to $157 per tonne. Despite costs rising 22% and slightly lower sales volumes, cash profits were 51% higher at $6.9bn. Capital expenditure was 29% higher at $211m.

Despite costs rising 22%, and sales down 16% Metallurgical Coal posted revenue growth of 52% to $2.9bn and cash profits up over ten times to $962m. That was purely a result of higher prices, which were 83% higher than the previous year. Capital expenditure decreased by 5% to $649m.

Manganese cash profits increased 4% to $315m, as higher sales offset cost increases. Crop Nutrients made a loss of $41m, but the Woodside project is progressing with capital expenditure on the project of $530m.

The group generated free cash flow of $7.8bn, reflecting higher profits partially offset by increased taxes. That helped net debt improve from $5.5bn last year to $3.8bn as at 31 December 2021.

On 4 June, the group completed the demerger of its thermal coal operations in South Africa.

Anglo American key facts

  • Price/Book ratio: 1.68

  • 10 year average Price/Book ratio: 1.01

  • Prospective dividend yield (next 12 months): 4.8%

All ratios are from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 24th February 2022