Rio Tinto maintains its 2015 full year dividend and revises dividend policy

DividendMax Ltd.

Rio Tinto maintains its 2015 full year dividend and revises dividend policy

Revenues and earnings

-   Consolidated sales revenues of $34.8 billion, $12.8 billion lower than last year, reflecting a
$13.1 billion reduction from the sharp decline in commodity prices.

-   EBITDA1 margin of 34 per cent, compared with 39 per cent in 2014.

-   Underlying earnings of $4.5 billion, $4.8 billion lower than 2014, with cash cost improvements, higher volumes, lower energy costs, positive currency and other movements (totalling $2.9 billion) partly offsetting the $7.7 billion (post-tax) impact of lower prices.

-   Underlying earnings per share of 248.8 US cents compared with 503.4 US cents in 2014.

-   Net loss of $0.9 billion reflecting non-cash exchange rate and derivative losses of $3.3 billion and impairment charges of $1.8 billion. The impairments mainly related to the Simandou iron ore project, Energy Resources of Australia (ERA) and the Roughrider uranium project. In addition, the Group recognised legacy remediation costs of $0.2 billion and general restructuring and headcount reduction costs of $0.3 billion.



-   Delivered strong operational performances in iron ore, bauxite, hard coking coal and aluminium.


Cash flow and balance sheet

-   Achieved $1.3 billion of sustainable operating cash cost improvements2 (including exploration and evaluation savings) in 2015, 35 per cent over target, bringing the total to $6.2 billion compared with the 2012 base.

-   Generated net cash from operating activities of $9.4 billion in 2015, as lower taxes paid and further improvements in working capital partly offset the impact of lower prices.

-   Tight management of working capital generated a further $1.5 billion cash inflow in 2015, aided by lower commodity prices, and were in addition to the $1.5 billion inflow in 2014.

-   Reduced capital expenditure by $3.5 billion to $4.7 billion, including $2.1 billion of sustaining capex, benefitting from the completion of major projects and continued capital discipline.

-   Announced $0.8 billion of agreed coal divestments in 2015 and 2016, which are expected to complete in the first half of 2016.

-   Maintained a strong balance sheet with net debt of $13.8 billion and gearing of 24 per cent, in the lower half of the targeted range. Free cash flow3 of $0.7 billion partly funded the $2.0 billion share


Capital returns in 2015

-   Returned $6.1 billion to shareholders in 2015 including the 2014 final dividend of $2.2 billion, the 2015 interim dividend of $1.9 billion and $2.0 billion of share buy-backs, comprising $0.4 billion off-market in Rio Tinto Limited and $1.6 billion on-market in Rio Tinto plc.

-   Maintained 2015 full year dividend at 215 US cents per share.


EBITDA margin is defined as Group underlying EBITDA divided by Product Group total revenues as per the Financial Information by Business Unit on page 11 where it is reconciled to profit on ordinary activities before finance items and taxation.

2Operating cash cost improvements represent the difference between the current and prior year full cash cost of sales per unit based on the prior year volume sold.

3Free cash flow is defined as Net cash generated from operating activities less Cash used in investing activities.

Revised dividend policy

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.

The policy has been revised as follows:


At the end of each financial period, the board will determine an appropriate total level of ordinary dividend per share, taking into account the results for the financial year, the outlook for our major commodities, the board's view of the long-term growth prospects of the business and the Company's objective of maintaining a strong balance sheet. The intention is that the balance between the interim and final dividend is weighted to the final dividend.

The board expects total cash returns to shareholders over the longer term to be in a range of 40 to 60 per cent of underlying earnings in aggregate through the cycle.

The board is committed to maintaining an appropriate balance between cash returns to shareholders and investment in the business, with the intention of maximising shareholder value.

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.


For 2016 only, in transition to the new policy, the intention of the board is that the total full year dividend will be not less than 110 US cents per share, equivalent to $2 billion. 



-   Further pre-emptive actions to be taken to maintain balance sheet strength.

§ Operating cash cost improvements (including exploration and evaluation savings) of $1 billion (pre-tax) expected in 2016 and an additional goal of $1 billion (pre-tax) in 2017.

§ Capital expenditure expected to be around $4.0 billion in 2016 (previously expected to be $5.0 billion), around $5.0 billion in 2017 (previously expected to be $7.0 billion) and around $5.5 billion in 2018. Each year includes around $2.0 billion of sustaining capex.

§ Continuing to target 20 to 30 per cent gearing ratio through the cycle.

§ Underlying effective tax rate of approximately 27 to 30 per cent expected in 2016.

§ Production guidance is unchanged from the Fourth Quarter Operations Review.


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