11th Feb 2016 09:39
LONDON (Alliance News) - Rio Tinto PLC on Thursday said it is targeting further cost savings in 2016, which will include a change to its dividend policy from "progressive" to "flexible", as it continues to battle the downturn in the market after the miner reported a substantial net loss in 2015.
The miner alleviated some concerns Thursday by sticking to its dividend for 2015, but warned its progressive policy is unsustainable moving forward as it outlined hefty cuts to its budgets to try to adjust to the current environment.
Rio Tinto shares were down 5.0% to 1,676.0 pence per share on Thursday morning.
Rio Tinto said its underlying earnings, used to measure the underlying performance of the business, fell 51% in 2015 to USD4.54 billion from USD9.30 billion, after revenue dropped to USD34.80 billion from USD47.60 billion. Revenue missed analyst expectations of USD36.62 billion
Net cash from operating activities fell 34% year-on-year to USD9.38 billion from USD14.28 billion last year. That caused Rio Tinto to swing to a hefty USD866.0 million net loss from a USD6.52 billion profit in 2014.
Importantly, the miner kept its dividend flat for 2015 at 215.0 US cents, alleviating some concerns this would be cut. However, Rio Tinto said its progressive policy is unsustainable moving forward and said it will now pay a dividend more aligned with its earnings.
"In light of the significant deterioration in the macro-economic environment and the resultant market uncertainty, the board believes that it is no longer appropriate to maintain the progressive dividend policy," said the miner.
Rio Tinto said the board will determine an "appropriate" level for its dividend at the end of each financial year, taking into account the results for that year, the outlook and the long-term growth prospects of the company, alongside the balance sheet. The miner said the current intention is to get the balance between the interim and final dividend weighted toward the final dividend.
"The board expects total cash returns to shareholders over the longer term to be in a range of 40% to 60% of underlying earnings in aggregate through the cycle," said Rio Tinto. "Acknowledging the cyclical nature of the industry, in periods of strong earnings and cash generation, it is the board's intention to supplement the ordinary dividends with additional returns to shareholders.
To put that into context, Rio Tinto's 215.0 cent dividend in 2015 amounted to USD4.10 billion. Based on the miner's underlying earnings in 2015 and the new policy moving forward, it would have only paid between USD1.81 billion and USD2.72 billion.
Importantly, Rio Tinto guaranteed its dividend in 2016 would be a minimum of 110.0 cents, with the new policy coming into effect thereafter. A 100.0 cent dividend this year would represent an almost 49% drop from the current dividend.
"Over the past five years we have returned more than USD25.00 billion to our shareholders, underlining our commitment to shareholder returns. However, with the continuing uncertain market outlook, the board believes that maintaining the current progressive dividend policy would constrain the business and act against shareholders' long-term interests," said Chairman Jan du Plessis.
"We are therefore replacing the progressive dividend policy with a more flexible approach that will allow the distribution of returns to reflect better the company's position and outlook," he added.
Rio Tinto said it has slashed its 2016 capital expenditure budget to USD4.00 billion from the previous budget of USD5.00 billion and said its budget for 2017 has been cut to USD5.00 billion from USD7.00 billion. Further out, Rio Tinto set a 2018 capex budget of USD5.50 billion.
In addition, the miner said it is targeting USD1.00 billion of operating cash cost savings in 2016, followed by a further USD1.00 billion of savings in 2017.
By Joshua Warner; [email protected]; @JoshAlliance
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