South32 targeting $US350m in savings

Diversified miner South32 is looking to cut its operating costs by 7.5 per cent over the next three years, with a particular focus on payments to contractors.

The BHP Billiton spin-off today reported a pro-forma net profit of $US28 million ($A38 million) for the year to June 30, down from $US64 million in the previous year.

The pro-forma accounts were prepared on the basis that South 32 had operated as a standalone entity, when the spin-off only took effect in May.

Underlying pro-forma earnings were up 41 per cent to $575 million, on revenue of $US7.7 billion.

The Perth-based miner said $US282 million of productivity-led and other cost efficiencies were “embedded” during FY15 as it fast-tracked the implementation of its decentralised business model.

It flagged plans to reduce costs by a further $US350 million by 2018, representing approximately 7.5 per cent of its controllable cost base.

"The implementation of our regional operating model and broader cost-saving initiatives are already delivering strong results," chief executive Graham Kerr said.

The company said it would focus on a reduction in contractor usage and rates, equipment and labour productivity, and procurement.

It would also seek to optimise energy fuels, particularly at its Worsley Alumina refinery in Western Australia, which can operate on coal and gas.

Worsley Alumina generated revenue of $US1.29 billion and EBIT of $US174 million – both equal to about 17 per cent of the group total.

South32’s other assets include manganese, aluminium, coal, silver and nickel operations in South Africa, South America and on the east coast of Australia.

As previously foreshadowed, South32 did not pay a dividend for FY15 but the company aims to distribute at least 40 per cent of underlying earnings as dividends every six months.

This goal will be aided by it strong balance sheet, with net debt was $US402 million.

“South32's strong balance sheet is a key point of differentiation and we value it highly," chief financial officer Brendan Harris said in a statement.

"Our simple capital management framework and dividend policy ensures our shareholders will be rewarded as financial performance improves."

South32 shares were 5.5 cents lower, broadly in line with a weaker market, at $1.465 in afternoon trade.