South32 Ltd (ASX: S32) reported its FY20 result a couple of weeks ago. How has the South32 share price reacted since?
The South32 share price is almost exactly the same price as it was when it reported.
FY20 result
The FY20 result was hit heavily by a decline in commodity markets.
Revenue fell by 16% to US$6 billion and the company reported a loss after tax of US$65 million, down from a profit of US$389 million in FY19.
The underlying numbers exclude a number of items including exchange rate gains of monetary items (US$72 million), losses on non-trading derivative instruments and other investments at fair value (US$149 million), the loss associated with earnings adjustments (US$108 million) and so on.
South32 announces its underlying profit to tell investors about the operating performance of the business.
Underlying EBITDA drop 46% to US$1.185 billion, underlying EBIT declined 69% to US$446 million and underlying profit plunged 81% to US$193 million.
South32 decided to pay a final dividend of US$0.01 per share. That brought the total ordinary dividend to US$0.021 cents, down 73%. South32 also paid a special dividend of US$0.011 cent during FY20, down 35%.
Summary
The deterioration in the commodity market was the primary cause of the big decline in profit. However, focusing on costs meant that unit costs remained “well controlled”.
A commodity business has to accept the price it can get for its resource. When prices go up it’s largely just adding profit to the bottom line – it still has to pay all the costs of wages, machinery and so on whether the price is 10% higher or 10% lower.
Higher production is expected in FY21. But I prefer consistently growing ASX growth shares like Pushpay Holdings Ltd (ASX: PPH).
