Rio Tinto reported a strong underlying 2016 net profit of US$5.1 billion (versus US$4.6 billion in 2015). Significant cost reductions totaling $1.6 billion were a feature. RIO has cut $7.8 billion in costs since 2012 and aims to deliver US$5bn of free cash flow in productivity improvements over the next five years. Strong cash flows including asset sales ($1.3billion in 2016) have strengthened the balance sheet, highlighted by a halving of the net debt over the last three years to US$9.6 billion. RIO’s final dividend of 125 US cents (170 US cents full year) well exceeded market expectations and, along with a US$500 million share buy-back, highlights the potential for growing capital returns in future years. Rio Tinto is now a rejuvenated strong resource major underpinned by a world-class suite of assets and very strong balance sheet.
John Murray established Perennial Value in January 2000 and has 30 years industry experience. He is one of Australia’s most respected value investors and has built a stable team of investment professionals delivering consistently strong returns.