BHP spin off South32 has trimmed its final dividend after lifting net profit 8% to $US1.33 billion ($A1.81 billion) in the year to June.
South32 will pay a fully-franked final dividend of 6.2 US cents a share, down from 6.4 US cents a year ago. But shareholders have been promised a $US300 million capital return in the current financial year (probably wth the interim results next February).
However the total payout for the year will be higher with an interim dividend of 4.3 US cents paid for the half year ended 31 December 2017, and a special dividend of US 3.0 US cents a share, making 13.5 cents for the year.
Underlying earnings for the year to June 30 were up 16% to $US1.33 billion, while revenue was up 9% to $US7.55 billion.
Shareholders liked the news and chased the shares higher and they were up 5.6% at $3.45 South32’s CEO, Graham Kerr, said the company hit production records at its Australian manganese operation and at Mozal Aluminium.
“We achieved record production at Australia Manganese and Mozal Aluminium, delivered a 10 per cent increase in total manganese ore production and a 20 per cent increase in payable nickel production at Cerro Matoso. At the same time our fully integrated aluminium supply chain benefitted from tight markets by virtue of our predominantly index-linked 3.2 million tonne long alumina position.
He said the company was now operating a more simplified group, thanks to the 2017 decision to manage South Africa Energy Coal as a stand-alone business.
This move is expected to deliver a $US50 million cost saving from fiscal 2020 onwards.
“Looking ahead, we are well positioned. Group production is expected to rise by 5 per cent in the 2019 financial year, further productivity gains and functional cost savings are expected to mitigate industry wide inflationary pressure and we have added high quality development options to our portfolio,” he said.
The company said yesterday that the higher profit “was driven by stronger commodity prices, which were only partially offset by a 7% decrease in sales volumes and broader inflationary pressure, most notably in our aluminium supply chain.”
“Free cash flow from operations, including net distributions from equity accounted investments, of US$1.4B and an increase in our net cash balance to US$2.0B allowed us to acquire Arizona Mining and announce the acquisition of a 50% interest in the Eagle Downs metallurgical coal project with fully-funded cash offers amounting to US$1.4B.
Directors said the key factors that impacted financial performance included:
“A US$349 million increase in the contribution of our alumina refineries to Underlying EBITDA and a 10% increase in their combined Operating margin to 40% as we benefited from our long alumina position and our exposure to market prices for the vast majority of production. A 10% increase in total manganese ore production, including record production at Australia Manganese, as we continued to respond to strong demand and pricing; Record production at Mozal Aluminium, as the smelter continued to test its technical capacity;
A 20% increase in payable nickel production at Cerro Matoso as ore grades improved temporarily following the ramp up of La Esmeralda; A 40% decrease in Illawarra Metallurgical Coal production as the Appin colliery was suspended for much of H1 FY18 as we sought to re-establish minimum performance criteria, and Strong cost control as the majority of our upstream operations achieved Operating unit cost guidance, despite broader inflationary pressure.
“Our strong financial position allowed us to return US$946M to shareholders in respect of the period. This included payment of a US$221M fully franked interim dividend and declaration of a US$317M fully franked final dividend in accordance with our dividend policy, which seeks to return a minimum 40% of Underlying earnings in each six month period.
“A further US$408M was returned to shareholders as part of our ongoing capital management program, with US$254M allocated to our on-market share buy-back program and US$154M returned in the form of a special dividend. Our capital management program was increased by US$250M to US$1B during FY18 with the remaining US$380M balance expected to be returned to shareholders in FY19.
