Rio Tinto (RIO) has maintained its policy of paying out progressively higher dividends with a 12% rise in its interim in US dollar terms, despite a sharp fall in earnings for the six months to June 30.
But in Australian dollar terms, the rise is a much more impressive 40% plus, thanks to the slide in the value of the Aussie against the greenback in the half year period.
Rio said the sharp slump in commodity prices saw underlying profits slide to $US2.9 billion, down 43%. On an after tax basis, profits fell 82% to a tiny $US806 million. But that was also after non-cash exchange rate and derivative losses of US$1.3 billion and impairment charges of US$400 million related mainly to its stake in Energy Resources of Australia Ltd.
Shareholders will be paid an interim dividend of $US1.075 a share, which is half the $US2.15 full year dividend paid for the 2014 calendar year.
In Aussie dollars the latest interim is $A1.44.91, 40% or 41 cents up on the $A1.0309 paid for the first half of 2014. Maintaining the first half payout to shareholders will see the total for the year close to $A4 a share.
The miner paid an interim dividend of $US0.96 in August 2014, and the company has continued to increase shareholder returns while revenues slide, even at the cost of chewing up profits.
RIO 1Y – Rio earnings down, progressive dividend policy maintained
Rio’s half year underlying earnings were $US5.1 billion in 2014, the weakest since the $US2.6 billion result in 2010 (in the wake of the GFC and the start of the clean up after the Alcan takeover debacle).
The miner has been slashing capital spending to support its profits in recent years. A further cut was confirmed in yesterday’s report.
Rio’s Australian shares had risen for the second successive day yesterday ahead of the results release after trading ended on Thursday afternoon.
The shares closed at $53.55, up 1%.
The iron ore price has also been strong in recent days and was fetching $US56.78 per tonne on Thursday, the highest in a month.
Rio Tinto pledged to lower costs beyond previous targets in 2015 and will cut planned capital spending in the wake of the earnings slide.
The miner lifted its cost-cutting target for the year after achieving a large portion of its previous targeted cuts in the first half, while also lowering its capital expenditure guidance for the year.
Rio estimated capex of around $US5.5 billion for 2015, and $US6 billion in 2016 next year.
Rio had previously forecast less than $US7 billion of expenditure in the current year, and close to $US7 billion for next year. Capex expectations for 2017 remain unchanged, at $US7 billion.
Rio Tinto chief executive Sam Walsh said a statement with the results yesterday: “This is a robust set of results, given the tough operating environment.
"Tier one assets and sound operating capability have delivered stable margins with underlying earnings of $2.9 billion during the half. Post-tax operating cash flows of $4.4 billion more than covered our sustaining capital expenditure of $1.2 billion and dividend payments of $2.2 billion,” he said.
“A continued focus on financial and operating discipline delivered first half cost savings of $641 million, representing 85 per cent of our original full year target, which we have now increased to $1.0 billion.
"We continue to invest in growth, and have reached key milestones in three of our growth projects with the expansion of our Pilbara iron ore infrastructure, first production from our expanded Kitimat aluminium smelter and an agreement to progress the development of the Oyu Tolgoi underground copper mine.
“The early and decisive actions we started taking in 2013 provide a strong base for the business. Our low level of absolute net debt and gearing allow us to maintain our commitment to capital returns in 2015, with $3.2 billion returned to shareholders in the first half through our progressive dividend and ongoing share buy-back programme.
"I am pleased to announce an increase in our interim dividend of 12 per cent, in line with our established dividend policy. I should like to thank all of my colleagues for their exceptional efforts in achieving these results.
“Rio Tinto is well placed to succeed in these volatile times, and we will use our competitive advantages for the benefit of all our stakeholders,” Mr Walsh said.
The miner raised its target for annual cost-cutting to $US1 billion, from $US750 million previously.
Underlying earnings for iron ore more than halved in the period, to $US2.01billion, from nearly $US4.7 billion in the previous period.
Underlying earnings for copper and coal plunged 40% to $US393 million, from $US658 million previously. But aluminium earnings more than doubled, to $US793 million, from $US373 million.
