The South32 Ltd (ASX: S32) share price is largely unmoved after the large resources business posted a significant decline of net profit.
South32 has projects across multiple continents, including Australia and South America. It mines and produces a number of different commodities including bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc.
South32’s heavy profit decline in HY21
South32 reported that its revenue declined by 8% to US$2.9 billion.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 7% to US$633 million, whilst underlying earnings before interest and tax (EBIT) dropped 4% to US$282 million.
South32 reported that underlying earnings rose by 4%, after excluding a number of items such as exchange rate losses, gains on non-trading derivative instruments, restructuring costs, impairments and so on.
But, including all of those other items, profit after tax and net finance costs declined by 46% to US$53 million. The South32 earnings per share (EPS) dropped by 45% to US 1.1 cent.
The company explained that a 9% reduction in the cost base and higher sales volumes were more than offset by weaker prices for its key commodities.
South32 said that it continues to focus on costs and remains on track to lock in US$50 million in annualised savings beyond FY22 as it works on efficiencies with reductions at its offices, as well as simplifying the corporate and marketing structures.
The company also said that it continues to transform its portfolio with the South African energy coal divestment progressing towards completion. After the reporting period, it also completed the sale of its TEMCO alloy smelter and a portfolio of non-core precious metals royalties.
Ordinary dividend increase
Despite the reduction in the statutory EPS, the board of South32 announced a 27% increase to the interim dividend to 1.4 cents per share.
The net cash of the business improved by US$23 million over the six month period to US$275 million.
Outlook
The CEO of South32, Graham Kerr, said:
We are off to a strong start in 2021, as we continue to build on our recent operating performance. Our net cash has increased from US$275 million on 31 December to US$452 million at the end of January, and we are now seeing a rebound in demand from markets outside of China for some of our key commodities, that is underpinning a recovery in prices. With this, our business is well placed to benefit as the global economy recovers, enabling us to deliver value for all of our stakeholders.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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