Rio Tinto Limited's (ASX: RIO) boss Sam Walsh has made good on his promise to "materially increase" shareholder returns, announcing a US$2 billion share buyback and a 12% increase to its full-year dividend when it reported its full-year earnings results.
However, the full-year results announcement wasn't all good news with the mining heavyweight reporting its worst half-year profit in two years.
So What: Crashing iron ore and copper prices heavily impacted Rio Tinto's results over the last year. Iron ore, which generates the vast majority of Rio Tinto's earnings, is currently sitting more than 50% below its price at the beginning of 2014 while copper is also hovering near a multi-year low.
While the miner reported a 78% increase in full-year profit to $6.53 billion, underlying earnings for the second-half fell 30% to US$4.19 billion, down from US$5.99 billion in 2013, while underlying earnings for the full-year were US$9.3 billion, down 9% from US$10.2 billion. As reported by the Fairfax press, the underlying earnings results were considerably better than what analysts had forecast.
Meanwhile, the miner reduced capital expenditure for the year by 37% to $8.16 billion which helped bolster free cash flow. As a consequence, Rio Tinto reduced its net debt by 31% to US$12.5 billion.
Pleasingly for shareholders, Rio Tinto came good on its promise to improve capital returns this year – unlike its rival BHP Billiton Limited (ASX: BHP) back in August last year. Despite the volatility and uncertainty facing the industry, Rio Tinto said it would spend US$2 billion buying back its own shares to reward long-term shareholders whilst also increasing its full-year dividend by 12% to US$2.15 per share. This includes a US$1.19 final dividend per share, up from US$1.085 per share from last year.
Now What: The outlook for the iron ore sector remains as gloomy as before with some analysts suggesting prices could fall as low as US$30 a tonne. While Rio Tinto's low-cost operations and various other competitive advantages will ensure it remains above water, the stock could still remain volatile for some time yet. Still, its improved capital returns should make investors happy for the time being.
