Fortescue annual profit plunges

Fortescue’s profit has slumped 58pc amid weaker iron ore prices, but its lower dividend payout was bigger than many expected.

Fortescue CEO Elizabeth Gaines. Pic: Bloomberg

Fortescue Metals Group’s annual profit plunged 58 per cent as weaker iron ore prices for its lower-grade ore more than offset a further reduction in costs.

But the Perth-based miner (FMG) has returned a bigger than expected dividend to shareholders, including chairman Andrew Forrest, backing up its recent stance it now has debt to where it wants it and will return more cash.

Fortescue reported net profit of $US879 million for the 12 months through June, down from $US2.1bn the year before.

Underlying profit of $US1.1bn, which stripped out one-off refinancing costs, met analysts’ expectations.

Fortescue’s revenue and profit have been hit by a lower iron ore price.

It has felt a larger hit from this than rivals BHP and Rio Tinto because of a widening in the discount for Fortescue’s lower-grade product as Chinese steel mills chase productivity gains amid tougher environmental regulations.

While the dividend was well down on last year, the final dividend of 12c per share was up on market expectations of 11c.

The dividend brings the full-year pay out to 23c, representing a $240m payout for Mr Forrest, who owns roughly a third of Fortescue, which he founded in 2003.

Fortescue chief executive officer, Elizabeth Gaines said: “During 2017-18, we completed the restructure of Fortescue’s balance sheet reducing debt, improving terms to investment grade conditions and significantly lowering the overall cost of borrowings.

“(This) saw Fortescue’s capital allocation weighted more heavily towards shareholder returns resulting in a payout ratio of 62 per cent of full year net profit after tax, ensuring that our shareholders benefit from our success following the rapid de-gearing of the balance sheet.”

The company said it reduced cash costs a further 4 per cent, but that the average price it received fell to $US44 a tonne, from $US53 a tonne during the 12 months earlier.

Shaw analyst Peter O’Connor said: “FMG beat dividend expectations with most market pundits.”

He said the stock had been punished by investors because of its low-grade ore but that the dividend beat could help provide a catalyst for an improved perception from the market.

.