Total Revenue to increase by close to $3.3 billion in a year in 2019, driven by rise in iron ore price realization
RIO's total revenue is expected to increase by over 8% to $43.8 billion in 2019 from $40.5 billion in 2018, led solely by higher iron ore revenue due to increased global prices, which would partially be offset by lower revenues across all other divisions.
To understand segment-wise revenue performance in detail, please refer to the following analysis-
Rio Tinto Revenues: How Does Rio Tinto Make Money?
Breakdown of Rio Tinto's Total Expenses
Operating cost as % of revenue has steadily declined over recent years, with the trend expected to continue in 2019 as well. A sharp rise in iron ore prices in the first half of 2019 is expected to lead to healthy improvement in operating margins for the full year. Additionally, improving grades at Pilbara operations is expected to lead to lower cost despite a slight drop in shipments during the year.
Net Operating Cost as % of Revenue
Impairment charge as % of revenue has been lower than 2% in the recent past, with it being just 0.3% in 2018. However, in 2019, the metric is expected to see a sharp jump to about 5.7% of revenue, mainly driven by a total impairment of $2.35 billion recognized in the first half of 2019 itself, related to decrease in recoverable value of RIO's 2 assets - ISAL Aluminum Smelter and Oyu Tolgoi (copper and diamond unit).
Impairment Charges as % of Revenue
Rio recorded significant gains from the sale of its coal business, along with a few aluminum assets and its stake in the Grasberg mine in Indonesia, which led to gain from disposal of assets to jump to 11.4% in 2018. In the first half of 2019, there was no gain/loss recorded. We do not expect any sale of business in the second half of the year as well, and hence the metric is expected to be nil in 2019, leading to a significant dent of over $4.6 billion in profitability for the year.
Loss/(Gain) on Disposal as % of Revenue
Derivative gains and losses have seen wide fluctuations in the recent past. Rio recorded a net gain of $647 million as foreign exchange and derivative gains on US dollar net debt and intragroup balances in 2018. With the dollar index expected to remain relatively stable in 2019, we do not expect any major gain/loss of forex for the company.
Derivative Loss/(Gain) as % of Revenue
The company's net finance cost as % of revenue has seen a continuous decline, with trend expected to continue in 2019 due to lower interest expense on the back of its renewed debt reduction initiative. Interest expense is expected to drop further due to Rio's successful deleveraging program - using excess liquidity for bond buyback - and higher capitalized interest.
Net Finance Cost as % of Revenue
Tax expense as a % of revenue was close to 10% over the last two years. The metric is likely to drop to close to 9% in 2019 due to lower profit before tax in the absence of any gains from asset sales in 2019.
Tax Expense as % of Revenue
Other expenses, which includes exploration cost, profit/loss related to undeveloped projects, non-controlling interests, etc., have seen a constant reduction as a % of revenue over the last 3 years. We believe the trend would continue in 2019 (as observed in H1 2019 as well) to reach about 0.6% of revenue.
Other Expenses as % of Revenue
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