The punters and other smarties who chased Rio Tinto shares higher in afternoon trading yesterday, trimming the day’s loss to just 17 cents, instead of 78 cents, got their expectations for a better than expected result wrong.
Rio shares ended at $58.03 yesterday; judging by the poor result, a lower close would have been in order. The shares rose 1% in London overnight.
Rio’s underlying profit fell short of analyst estimates and cash flow from operations slumped.
Rio reported that underlying profit for the June half totaled $US2.6 billion, short of the $US2.73 billion estimated from analysts.
Net profit came in at $US2.45 billion, almost a third of the $US6.95 billion recorded a year earlier, according to the interim report filed with the ASX late yesterday.
As announced in early June, there’s no interim dividend for shareholders, so the company’s share price has been rising on the basis of hope and a bit of hot air about recovery.
But a final dividend for the 2009 year has been promised (subject to the usual provisios about markets etc) as has a full year payment for the 2010 year equal to that in 2008 in terms of total cash payment (which was $US1.75 billion).
Revenues from continuing operations fell from $US27.2 billion to $US18.8 billion.
Debt rose a touch to $US39 billion, but that will more than halve with the money raised from the rights issue and asset sales.
The company was strangled by its top of the market expansion in aluminium.
Alcan, the unit whose $US38 billion acquisition in 2007 created Rio’s debt burden, dropped to a loss of $US206 million before interest, taxation, depreciation and amortisation, compared with an ebitda gain of $US2.4 billion in the first half of 2008.
Rio went out of its way to try and illustrate that its underlying business wasn’t that bad, compared to its net earnings and other measures.
It included a table in the results statement to try make the difference clearer.
The difference was just $US114 million between underlying earnings of $US2.565 billion and $US2.451 billion.
Sitting in the table was the saviour for the company, a whopping great foreign exchange and derivatives contribution of a positive $US820 million.
Forex gains have helped a number of companies with global businesses, especially in the six months to June 30.
BHP Billiton was assisted and yesterday QBE Insurance got a nice boost.
Without that boost, or even a contribution of half that figure, and Rio’s results for the June half would have been rotten instead of bad.
Of interest in the statements from chairman Jan Du Plessis and CEO, Tom Albanese was the absence of any mention of Stern Hu and the elephant in the Rio board room, the brawl with China over iron ore.
Rio Tinto’s chairman Jan du Plessis said in yesterday’s statement “The Group has taken swift and decisive action in response to the global economic crisis and sharp falls in metals and minerals prices.
"As a result of our successful rights issues, we have reduced net debt by $US14.8 billion.
"There is more work to do, but we are better positioned with renewed financial strength and a leaner cost base.
“We are currently working closely with BHP Billiton to conclude binding agreements for the iron ore production joint venture that will cover our operations in Western Australia and which we believe will deliver substantial synergies.
“On 5 June we announced the 2009 interim dividend would not be paid. We expect to make a 2009 final dividend payment subject to satisfactory trading results, progress on divestments and prevailing market conditions.
"We expect that the total cash dividend for the 2010 financial year will be at least equal to the total cash dividend payment for 2008 of $US1.75 billion, albeit over an increased number of shares.
"From that point on, the Group is committed to the resumption of a progressive dividend policy over the longer term.”
”We remain cautious about the recent rally in prices. However, the expectation that development in emerging markets will generate underlying strength in metals and minerals demand over the long term remains broadly unchanged.
"Rio Tinto has a strong business with some of the best assets in the industry and we will continue to take the actions necessary to ensure we are well placed to deliver value for our shareholders whatever the timing of a recovery.”
Tom Albanese, Rio Tinto’s chief executive was ever the optimist, saying “Despite difficult markets, our businesses are running smoothly.
"We are on track to meet the commitments we made in December last year to reduce operating expenditure and the capital expenditure estimate has been revised in line with market conditions.
“Our Pilbara iron ore operations set a new quarterly record in the second quarter of this year, consistently operating at a run rate exceeding 200 million tonnes per annum.
"Benchmark iron ore contracts for the year commencing 1 April 2009 have now been settled with Japanese, Korean and Taiwanese customers.
"Prices are below last year’s record benchmark but are still the second highest ever achieved.
"Delivered spot prices strengthened during the first half reflecting tightening market conditions.
“The iron ore production joint venture with BHP Billiton will create an unrivalled iron ore operation with world class assets and infrastr
