Rio Tinto Posts Annual Loss; New CEO Vows to Cut Costs
Rio Tinto's new chief flagged he would slash costs, spend capital more carefully and focus on shareholder value after the world's no.3 miner reported a $3 billion loss, its first ever full-year loss.
Chief Executive Sam Walsh was appointed last month when his predecessor was sacked for misjudged aluminium and coal acquisitions that led to $14.4 billion in write downs and left the company in the red.
In an exclusive interview with CNBC's "Worldwide Exchange," Walsh said the impairment charges were "very disappointing and unacceptable."
"We can do better and I will improve this great company further," Walsh told reporters, saying he would take a more aggressive approach to selling assets that no longer fitted with the company's goals.
Rio reported a 47 percent plunge in half-year underlying profit, its worst since 2009 due to sharp falls in commodity prices, although the result was slightly better than expected.
Underlying profit fell to $4.149 billion for July-December 2012 from $7.768 billion a year earlier, based on Reuters calculations. Analysts on average had forecast a half-year underlying profit of $3.93 billion.
Ahead of his first outing as chief executive, investors said the biggest challenges facing Walsh are to decide what to do with the group's Pacific Aluminium and diamonds businesses, both stuck on the auction block for over a year, and how to drive growth outside its powerhouse iron ore business, which generates nearly all of Rio's profits.
Walsh, 63, led the iron ore unit for nine years, slashing costs, securing stakes in high quality deposits, and automating operations with driver-less trucks and trains run from a high-tech center 1,500 kilometers (940 miles) away from the mines.
Cost-cutting is high on his agenda, with Walsh flagging the company would rip out more than $5 billion in total costs by the end of 2014, and cut annual running rates by $3 billion. Investors are eager to hear how exactly it plans to meet that goal.
"Throughout 2013 and 2014 we will seek to enhance margins at our existing businesses by unlocking substantial productivity improvements, aggressively reducing costs and better managing our sustaining capital," Walsh said in a statement.
Speaking to CNBC, Walsh said: "We are looking at a range of divestments this year. This is not a fire sale… but let me assure you, we are looking for value for our shareholders."
Under pressure from investors concerned that big miners wasted cash during the boom times and should have rewarded shareholders more generously, Rio raised its final dividend to 94.5 cents a share, well above forecasts around 87.5 cents.
"The market will like the lift in the dividend," said UBS analyst Glyn Lawcock.
Walsh told CNBC the high dividend is "an indication of the confidence the board has in the business".
Rio Tinto, like bigger rival BHP Billiton, has a "progressive" dividend policy that calls for it to steadily increase dividends in good times and bad, a policy that analysts say should be scrapped.
The iron ore business, which Walsh led until January, made up nearly all of Rio Tinto's second-half underlying earnings, with higher volumes partly offsetting a drop in prices, cushioning losses in aluminium operations.
For the full year, Rio reported a $2.99 billion loss, reflecting write downs on its Alcan takeover in 2007 and a coal acquisition in Mozambique, where transport challenges have slowed development and coal output estimates have been cut.
"The corporate division clearly failed last year...Some of that is clearly just lack of focus," John Meyer, an analyst at independent research firm SP Angel, told CNBC on Thursday.
Rio's shares touched a one-year high in Australia of A$72.30 ahead of the result. The stock has climbed nearly 30 percent over the past six months, outperforming the broader market as metals demand in China has picked up.
Iron ore prices have nearly doubled from a trough around $87 a ton last September to the current price around $155.