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Fortescue lifts payout after profit jump

AAP logoAAP 21/08/2016 Prashant Mehra

Fortescue Metals Group has hoisted its final dividend to a record high after a partial rebound in iron prices and lower costs helped the Pilbara miner more than treble full-year profit.

A year after it paid a final dividend of just two cents per share, Fortescue exceeded analyst expectations of a four-to-six cent dividend by announcing a payout of 12 cents per share.

Larger rivals BHP Billiton and Rio Tinto have curtailed shareholder payouts this year to conserve cash.

Fortescue, the world's fourth biggest iron ore exporter, reported a $US985 million ($A1.3 billion) net profit for the year to June 30, up from $US316 million and ahead of analyst forecasts of between $US800 million and $US900 million.

"We see China's demand for iron ore continuing to be strong," chief executive Nev Power said on Monday.

"The physical iron ore market remains in supply-demand balance, and that will underpin strong demand for steel in the longer term."

Fortescue shipped 169.4 million tonnes of iron ore in the 12-month period, slightly higher than its guidance of 165 million tonnes.

Revenue fell 17 per cent to $US7.08 billion as iron ore prices slumped to a decade low of $US38 a tonne in late 2015. Prices are still down two thirds from their peak four years ago, but have since recovered to $US61 a tonne.

The rebound in recent months has given Fortescue some breathing space, with the miner using the extra cash flow to trim its heavy debt. It has also raced to cut costs to ride out the downturn and to align its cost structure with BHP Billiton, Rio Tinto and Brazil's Vale.

The company slashed average costs by 43 per cent in 2015/16 to $US15.43 per tonne, but expects to lower cash production costs further to $US12-$US13 per wet metric tonne (wmt) in 2016/17.

Mr Power said it is becoming more challenging to continue delivering further cost reductions, so the company is focusing on productivity and metallurgical improvements to boost efficiencies.

The company said it repaid $US2.9 billion of debt during 2015/16.

Its gross debt at June-end stood at $US6.77 billion, and has now nearly halved from a peak of $US13 billion in 2013. The company borrowed heavily over the last decade to build its mines and related infrastructure in Western Australia.

The company's key priority will continue to be debt reduction, but the lower gearing would result in more cash to pay dividends, Mr Power said.

"We expect the market to focus on sustainability of the higher dividend, which ultimately comes down to price," UBS analyst Glyn Lawcock said in a client note.

Fortescue shares, which have more than trebled in market value in 2016, lost ground to close down 12 cents or 2.4 per cent at $4.81.

FORTESCUE'S FY PROFIT JUMP

* Net profit up from $US316m to $US985m

* Revenue down 17pct $US7.08b

* Final dividend up 10.0 cents to 12.0 cents, fully franked

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