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Fortescue Profit Declines 88% to US$317 Million

Fortescue Profit Declines 88% to US$317 Million
Aug 24, 2015 By Simon Herrmann

Iron-ore miner Fortescue Metals (ASX:FMG) announced a profit of US$317m for FY15, a decline of 88% compared to $US 2.7bn in FY14. Basic Earnings per share (EPS) were 10.18 cents, down from 88 cents in FY14.

Revenue declined 27% to US$8.5bn compared to $US11.7bn in the previous corresponding period, largely due to significantly lower iron ore prices and a strong US currency. Revenue included a 33 per cent increase in shipments to 165,4mt which is partially offsetting the dramatic decrease in iron ore market prices.

In light of low commodity prices and due to the 88% fall in profit, management was forced to cut dividends. Fortescue announced a final distribution of A$0.02, bringing total dividends to A$0.05. This compares to a A$0.20 distribution in FY14, a 75% reduction. Fortescue believes that this ‘modest dividend demonstrates Fortescue’s confidence in the long-term market for iron ore and the ability to drive down costs to improve its position on the global cost curve.”

Fortescue reduced operating costs by 21% to $US27 per wet metric tonne and targets further costs reductions in the upcoming year. Fortescue states that its breakeven price for iron ore is US$39 per tonne, down from last year’s $US60.

Fortescue CEO Nev Power said the results “reflected the ongoing improvement in productivity and efficiency with strong outcomes across the company’s three key focus areas” safety, production and costs.” Chief Financial Officer Stephan Pearce sees improvements in the company’s balance sheet as he emphasises the “sustained operational efficiency and productivity gains” which have resulted in a closing cash balance of US$2.4bn. As of 30 June 2015 net debt was $US7.2bn.

Fortescue’s focus for FY16 will be primarily on cutting costs while maintaining total shipping volumes. FY16 shipping guidance is 165mt, broadly in line with shipping volumes in the past 12 months.

As of 11am (AEST) FMG was trading at $1.77, down 7.3% from Friday’s closing price of $1.91. FMG has declined ~35% so far this year and is down ~60% in the past 12 months.

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Simon Herrmann Author: Simon Herrmann Aug 24, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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