Fortescue profit hit by lower iron ore prices
Fortescue has cut its dividend as first-half profit fell by 44pc, following a hit to revenue from weaker iron ore prices.
Andrew Forrest’s Fortescue Metals Group has announced a smaller than expected dividend, in the latest sign of the squeeze being felt at the company as a result of softer lower-grade iron ore prices.
Perth-based Fortescue (FMG) today announced an interim dividend of 11c per share, representing a payout of 40 per cent of earnings. That falls outside Fortescue’s policy of paying out between 50 and 80 per cent of annual earnings as dividends.
The conservative approach to the dividend — the first announced by the company under new chief executive Elizabeth Gaines — was in contrast with the company’s better-than-expected profit result.
Fortescue reported a net profit of $US681 million, better than the consensus analyst estimates of $657m, while the underlying earnings before interest, taxation, depreciation and amortisation of $US1.83bn topped expectations of $US1.73bn.
The net profit was down 44 per cent from a year ago while underlying EBITDA was 31 per cent weaker. The realised iron ore price has been the main drag on Fortescue’s earnings, with the market for Fortescue’s lower-grade material substantially softer than that for the higher grade material of its rivals.
The company also announced it had refinanced $US1.4bn of debt through a syndicate of Chinese, Australian and European banks, which it said would save it an estimated $US80m a year in interest.
The company is maintaining its dividend payout ratio at 50 to 80 per cent of full-year earnings, suggesting the company will need to skew its dividends to the second half.
RBC Capital Markets analyst Paul Hissey, who rates Fortescue a sell due to concerns about the discounts attached to Fortescue’s lower grade ores, had been tipping an interim dividend of 15c a share.
“The result was a beat to our estimates owing primarily to better shipping costs than we had forecast which flowed through the result to earnings,” he said.
“The dividend was softer than our estimates — we were looking for 65 per cent of earnings, the midpoint of FY18 guidance — though we appreciate the company may weight capital returns towards the second half.”
Shares in Fortescue were down 3.4 per cent in midday trade, while BHP — which released its results last night — down almost 5 per cent and Rio Tinto down 1.6 per cent.
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