Record dividend for Rio

RIO Tinto has posted strong full-year earnings and a record dividend.
Record dividend for Rio Record dividend for Rio Record dividend for Rio Record dividend for Rio Record dividend for Rio


Kristie Batten

Full-year underlying earnings for 2017 came in at US$8.6 billion, in line with consensus, while net earnings were $8.8 billion.

Operating cashflow was $13.9 billion, underlying EBITDA were $18.6 billion and the EBITDA margin was at a 10-year high of 44%.

The company announced a record full-year dividend of $5.2 billion, equivalent to 290c, including a final dividend of 180c.

Rio also announced an additional $1 billion buyback.

“This brings total cash returns to shareholders to $9.7 billion declared for 2017,” Rio CEO J-S Jacques said.

“The strength of our cashflow is a result of resilient prices during the year coupled with a robust operational performance and a focus on mine to market productivity.”

The company’s mine to market productivity drive realised an additional $400 million of free cashflow.

“Our strong balance sheet, world-class assets and disciplined allocation of capital puts us in the unique position of being able to invest in high-value growth through the cycle, and consistently deliver superior cash returns to shareholders.”

Net debt stands at just $3.8 billion, with gearing at only 7%.

"Gearing sits well below long-term guidance ranges with the company's current growth plans easily covered by free cashflow," Morgans analyst Adrian Prendergast said.

"Having more cashflow than you can invest is a great problem to have.

"If Rio do not accelerate or broaden current growth plans then we expect the company will continue to direct increasing amounts of capital into dividends and further buybacks."

Rio shares closed 3.8% higher at A$78.31. 
 "We see Rio as a little expensive at current levels (vs our previous price target of A$73.33), albeit justifiable given the strength of its fundamentals," Prendergast said.

During the results presentation in London, Jacques said Rio would “invest in high-end growth”  and not “do M&A for the sake of it”; largely highlighting existing projects like the Oyo Tolgoi expansion, on which the company will spend around US$2 billion across 2018 and 2019.

Jacques refuted South African Mining Minister Mosebenzi Zwane’s claim the Richards Bay mineral sands project was going ahead by outlining the timeline: feasibility study in March with a decision following from there.

Looking ahead, Jacques and CFO Chris Lynch said they would build cashflow through the productivity drive that netted them an extra $400 million in 2017.

“We’ve just started on this program but we’re confident we’ll deliver an additional $5 billion in cumulative free cash free flow to the business by 2021, with an annual exit rate of around $1.5 billion,” Lynch said.