Global miner Rio Tinto Plc. (ASX:RIO) released FY15 results where its reported a US$886 million loss and announced that it will discontinue its progressive dividend policy.
Rio Plummets to a Loss
Rio Tinto posted statutory net loss of US$866 million, compared to a US$6.53 billion profit for FY14. Subsequently, the underlying earnings dropped to US$4.54 billion, from US$9.31 billion in FY14. The result was adversely affected by US$1.8 billion worth impairment charges against its iron-ore and uranium projects. The company also suffered US$3.3 billion loss in foreign exchange and derivatives. Net cash from operating earnings declined 34% to US$9.38 billion, from US$14.29 in the previous year.
The company increased its net debt by 10% to US$13.78 billion, along with a 5% rise on its gearing ratio to 24%. However, the company states that the net debt improved US$700 million against a US$14.5 billion pro-forma position at the end of 2014.
The consolidated sales revenues declined US$12.8 billion over the previous year, to US$34.8 billion. This reflected a US$13.1 billion reduction from the sharp decline in commodity prices. Overall the EBITDA margin declined from 39% to 34% during the year.
CEO’s Take on Results
Rio Tinto’s Chief Executive Officer, Sam Walsh commented on the results: “Against a highly challenging environment, Rio Tinto delivered a strong performance in 2015 with underlying earnings of US$4.5 billion. We continued to take decisive action to preserve cash through further cost reductions, lower capital expenditure and the release of working capital.”
Mr. Walsh further added that the continued deterioration in the macro environment has generated uncertainty in the market. The company will continue to take proactive measures to further reduce its operating costs by US$1 billion in FY16 along with an additional US$1 billion in FY17.
Dividend Policy Altered
The board revised its ‘progressive dividend policy’, and adopted a more flexible approached whereby the dividend distribution is reflective of the company’s financial position.
The board declared a final dividend of US$1.075 per share, bringing the full year value to US$2.15 per share, unchanged from the previous year.
For FY16 however, the company’s management announced that it targets to distribute at least US$1.10 per share. The reduction is primarily based on management’s uncertain outlook on major commodities.
Outlook for FY16
Rio states that it will continue to take further pre-emptive actions to reduce its capital expenditure by US$2 billion each year until 2017. The miner targets 20 to 30% gearing ratio through the cycle.
RIO eased approximately 1.3% upon open (as at 10:11 AM AEDT), to $40.6.
Author: Simon Herrmann
Feb 12, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.