6th Aug 2015 10:26
LONDON (Alliance News) - Rio Tinto PLC Thursday said the fall in world commodity prices caused its earnings to drop by around USD3.60 billion in the first half of 2015, but the miner still posted results and an interim dividend that beat analyst expectations.
The FTSE 100-listed miner also continued to slash costs, cutting its capital expenditure budget in 2015 and 2016, alongside increasing its cost-saving target by USD250 million for the 2015 full year.
The company reported a pretax profit of USD1.74 billion in the first half of 2015, less than a third of the USD6.09 billion profit made a year earlier, as revenue fell to USD17.98 billion from USD24.33 billion.
Pretax profit before finance costs came in at USD3.66 billion, also considerably down from the USD5.88 billion profit a year earlier.
Earnings before exceptional items fell to USD2.92 billion in the first half of 2015, compared to USD5.11 billion. That beat analyst expectations, which had earnings coming in around USD2.43 billion, according to a consensus provided by the company.
Rio Tinto said the fall in commodity prices in the first half of 2015 decreased its earnings before exceptional items by USD3.62 billion compared to a year earlier, mainly caused by average iron ore prices falling by 46% year-on-year in the first half, compounded by lower coal, copper and gold prices.
"The economic environment has been challenging particularly for commodities with some prices falling to levels not seen since 2009," said Chief Executive Sam Walsh.
That USD3.62 billion fall in earnings was partially offset by production increases which enhanced earnings by USD79 million in the first half, and a USD847 million benefit from exchange rates. Lower energy costs also enhanced earnings by around USD396 million, mainly due to the fall in oil prices.
Earnings before interest, tax, depreciation, amortisation and exceptional items came in at USD7.30 billion, down from USD10.45 billion, which also beat analyst expectations for Ebitda before exceptional items of USD6.69 billion.
Broken down, the iron ore division contributed Ebitda before exceptional items of USD4.09 billion compared to USD8.09 billion a year earlier, diamonds contributed USD413 million compared to USD492 million and the copper and coal business reported a flat Ebitda of USD1.46 billion.
Its aluminium business performed much better as the only commodity that actually saw prices rise year-on-year, contributing USD1.68 billion in Ebitda compared to USD1.09 billion a year earlier.
"The aluminium group benefited from continued portfolio optimisation, momentum from cost reduction and productivity improvement initiatives, weaker Australian and Canadian currencies and higher prices, including regional market and product premiums, compared with 2014 first half," said the company.
Despite the dramatic fall in earnings, Rio Tinto stuck with its progressive dividend policy, increasing the interim dividend by 12% to 107.5 cents per share from 96.0 cents per share. That also beat analyst expectations for the miner to pay an interim dividend of 106.0 cents per share.
Rio Tinto also said it will progress with its share buy-back programme originally announced in February, and said it will purchase USD1.0 billion of shares in the second half of 2015.
Walsh said later Thursday the company aims to deliver "industry-leading" returns in the struggling mining sector in the long-term, with a focus on sustaining capital expenditure and maintaining its progressive dividend policy.
Looking toward the second half of the year, Rio Tinto said it now expects to reduce its operating cash cost for the full year by around USD1.0 billion, compared to its previous guidance of only USD750 million. Rio Tinto revised its cost-saving target for the year, after saving USD641 million in the first half.
The miner also slashed its capital expenditure budget in 2015 to around USD5.50 billion and said it will be less than USD6.0 billion in 2016. Both those revisions compare to its previous target to spend around USD7.0 billion per year in 2015 and 2016. Capital expenditure for 2017 is expected to remain at USD7.0 billion.
For all three of those years, sustaining capital expenditure is expected to make up around USD2.50 billion of those budget each year.
At the end of June, net debt stood at USD13.68 billion, a 10% rise from the USD12.49 billion at the end of June 2014, pushing the company's gearing ratio up to 21% from 19%, mainly due to its ongoing share buyback programme.
Rio Tinto had already released its production figures for the first half of 2015 earlier in July. The miner reported iron ore production of 154.3 million tonnes on a 100% basis in the first half, up 11% year-on-year, whilst iron ore shipments rose 8% to 153.9 million tonnes.
Iron ore sales accounts for roughly 90% of the Rio Tinto's profit.
However, it said it expects 2015 full year global iron ore shipments of 340 million tonnes from its operations in Australia and Canada, compared to its previous forecast that global shipments would be "approaching" 350 million tonnes for the full year.
In other commodities, Rio Tinto still expects its share of production for the full year to remain unchanged at 43 million tonnes of bauxite, 8.0 million tonnes of alumina and 3.3 million tonnes of aluminium.
Rio Tinto shares were down 0.9% to 2,545.50 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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