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Shareholders rewarded as Fortescue profit soars

Prashant Mehra  |  21 Aug 2017Text size  Decrease  Increase  |  

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SYDNEY - [AAP] Fortescue Metals (ASX: FMG) has sharply lifted its dividend and promised to sustain higher payouts for shareholders as a rebound in iron prices and lower costs helped it more than double full-year profit.

The world's fourth-biggest iron ore exporter on Monday reported net profit of $US2.09 billion ($A2.64 billion) for the year to June 30, in line with analyst expectations and up from $US985 million a year earlier.

Revenue for the year rose 19 per cent to $US8.45 billion ($A10.65 billion).

Its board declared a final dividend of 25 cents a share, up from 12 cents last year, lifting full-year payout to 45 cents a share--far higher than its target ratio of 30 to 40 per cent of net profit.

The increased payout will earn Fortescue's founder and biggest shareholder Andrew "Twiggy" Forrest around $260 million for his 33 per cent stake in the company.

Fortescue has now raised its payout ratio to a range of 50 to 80 per cent of net profit after tax, although prevailing iron ore prices and balance sheet strength will determine the actual dividend, chief executive Nev Power said.

"The 50 to 80 per cent payout ratio that we have guided will be influenced very heavily by what we see as the iron ore price outlook at the time," Mr Power told reporters.

"I see that as continuing going forward."

The shareholder reward comes after the miner slashed gross debt to $US4.5 billion at June-end, down from the peak of $US13 billion in 2013, using the extra cash flow from a rebound in iron ore prices over the last 12 months.

It has also used the period to align its cost structure with larger rivals BHP, Rio Tinto, and Brazil's Vale, shearing cash costs 17 per cent in FY17 to an average of $US12.82/wet metric tonne.

It aims to further trim cash costs to between $US11 and $US12 per wmt in FY18.

RBC Capital Markets analyst Paul Hissey said the final dividend was stronger than expected.

"The higher dividend policy suggests a possible absence of other spending alternatives--both in terms of growth options and no debt maturities until 2022," he said.

"Despite cost savings, Fortescue's share price remains acutely exposed to iron ore price movements."

Iron ore prices have tracked higher in recent months but remain volatile amid rising demand from China's steel industry, with the steel-making ingredient currently trading around $US75 per tonne.

Mr Power said 2017/18 is likely to be another year of consistent demand from China.

"The market is not necessarily growing at rates we have seen previously but it is maintained at a very high level and represents a tremendous market for us going forward," he said.

By 1430 AEST, Fortescue shares were up 6.5 per cent at $5.85 each.

IRON ORE PRICES REINFORCE FORTESCUE'S YEAR

* Net profit $US2.09b vs $US985m

* Revenue $US8.45bn, up 19 pct

* Final dividend of 25 cents a share, up from 12 cents

 

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