BHP-Billiton spin-off South32 to cut costs and capital expenditure

South32, which was spun off from mining giant BHP-Billiton, has said it plans to cut millions of dollars in costs and capital expenditure, given the weak operating environment in the commodity sector. The company announced the plans in its first financial results since its spin-off in May.

South32 said it would reduce controllable costs by at least $350m (£223m, €307m) per annum by the end of financial year 2018. In addition, it plans to cut sustaining capital expenditure by 9% to $650m in financial year 2016.

The company's pro forma underlying earnings rose by 41% to $575m in financial year 2015 that ended in June. Meanwhile, profit after tax declined to $28m from $64m a year earlier, due to impairment charges related to manganese and coal operations in South Africa and Australia.

"The implementation of our regional operating model and broader cost saving initiatives are already delivering strong results," South32 CEO Graham Kerr said in a statement. "Over the next three years, we are seeking to reduce controllable costs by at least $350m per annum."

"We have hit the ground running since becoming an independent, stand-alone company. Our regional operating model and teams are in place, we are right-sizing our systems and processes, and driving the necessary cultural change across the group," he added.

South32 intends to reduce layers of management, aggregate functional support at the regional head offices, foster stronger relationships with stakeholders and optimise its procurement function, as part of growth strategy.

When South32 started trading as a separate entity on the Australian Stock Exchange on 18 May, its shares received a lukewarm reception from investors. The shares, which attracted a value at the lower end of analysts' expectations on the debut day, declined about 28% since its initial trading day, due to the collapse in the prices of key commodities.

BHP earlier decided to spin off its alumina, aluminium, nickel, silver and lead assets to South32 with a view to focusing on its core divisions such as iron ore, copper and energy resources including coal, oil and gas, and cut costs further.

As per the spin-off proposal, BHP-Billiton shareholders received one share in South32 for each BHP share that they owned.