South32 posts a loss of $1.6bn

The South32 office in Johannesburg, South Africa. File picture: Nicholas Rama

The South32 office in Johannesburg, South Africa. File picture: Nicholas Rama

Published Aug 26, 2016

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Johannesburg - South32, the Australian- and JSE-listed diversified company which was spun off from BHP Billiton a year ago, posted losses on a non-cash payment.

Read also: South32 to pay first dividend

The company said in a statement yesterday that the stock declined 3.11 percent to R21.16 a share as the group's statutory loss of $1.6 billion (R22.47bn) in the 2016 financial year was significantly impacted by non-cash impairment-related charges recorded in the December 2015 half year, totalling $1.7bn.

South32, which listed last May and the operations of which include South Africa Manganese and Australia Manganese, also reported lower revenue.

Chief executive Graham Kerr said the deterioration in commodity markets was the primary driver of the significant decline in profitability, reducing revenue by $1.5bn, net of price linked costs.

Kerr said as such, in this context, the group would have recorded an underlying earnings before interest and taxes loss if not for the substantial $386 million reduction in controllable costs.

A maiden dividend a year after it was established was paid, despite lower revenue in the year to June.

“Twelve months on, South32 is a much stronger company with significantly lower costs and a balance sheet that provides flexibility. Against this backdrop, our board resolved to pay an inaugural dividend of US 1 cent per share,” Kerr said.

Unlock potential

The company generated free cash flow of $597m and finished the year with net cash of $312m.

“We will continue to unlock the potential of our portfolio, identify opportunities and pursue investments where we see value, but will not compromise our strong balance sheet and investment grade credit rating,” Kerr said.

“Production guidance for the 2017 financial year was maintained for the majority of our upstream operations and will stretch performance to meet cost targets. Our functions are lean, with corporate costs now half the level envisaged at the time of listing,” Kerr said.

In terms of South African operations, South32 said its cost target for South Africa Manganese was unlikely to be achieved before the June 2017 half year following the fatality at Wessels in June and the subsequent reprioritisation of activities in the underground mine.

Corporate costs of about $70m a year from the 2017 financial year were almost 50 percent lower than envisaged at the time of listing.

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