Rio Tinto’s new broom
Simon Thompson has taken the helm of the world’s second biggest mining firm. He may be just the man for the job, says Alice Gråhns.
Simon Thompson has taken the helm of the world's second biggest mining firm. He may be just the man for the job, says Alice Grhns.
"Rio Tinto is playing it safe," says Clara Ferreira Marques on Breakingviews. After a nine-month search, the $90bn Anglo-Australian miner has picked Simon Thompson over former Xstrata chief executive Mick Davis to lead the board. The protracted process suggests Thompson, a Rio director since 2014 and chairman of venture-capital firm 3i Group, "was not the first choice". Davis was tipped in media reports as the frontrunner until a group of shareholders vetoed him.
Quite right too, says the Evening Standard's Jim Armitage. "Putting one of the industry's brashest dealmakers atop a firm only just recovering from the crazed M&A party of the commodities boom seemed like handing an AA meeting the keys to the booze cupboard."
What Rio needs is a chairman "with an air of stability and calm about him; a City steward who will leave the chief executive Jean-Sbastien Jacques to do his stuff without interference". After all, just look what has happened in the past year. Director John Varley was felled by the Barclays fraud investigation, while ex-CEO Tom Albanese was accused of fraud by US regulators. Rio has also fired its legal chiefs over alleged bribery in Guinea.
After all this drama, says Lex in the Financial Times, shareholders are playing it safe. They want "a self-driving cash machine that reliably delivers large payments at regular intervals". Things have been moving in the right direction. Borrowings at the company have come down by $15.4bn since 2013 and net debt is half that of its peers. Dividends, cut in 2010, have been rising and shares now yield 5%. Still, this efficiency drive to free up cash the iron-ore business is introducing self-driving trains, for instance forfeits growth. Revenues have declined 8% annually in the past five years, in part due to lower metals prices.
Yet Rio's emphasis on keeping supply and capital spending in check "makes sense", says Nathaniel Taplin in The Wall Street Journal. Since 2012, 80% of Rio'soperating profit has come from iron ore, but now demand in China, which sucks up half the global supply, appears to be peaking. Urban population growth is slowing. No wonder, then, that Rio cut its estimate of 2017 capital expenditures by more than $500m on Monday.
"Discipline won't replace all that demand", but over the next few years, knowing when and where to pounce on opportunities will be critical. "A leader with a background in both mining and venture capital, and untarred by blunders during the last commodity boom, may be just the man for the job."
Daily Mail succumbs to gravity
"The Daily Mail is finally succumbing to the media industry's malaise," says Liam Proud on Breakingviews. After years of defying gravity while rivals saw circulation and revenue dwindle, the tabloid's parent company now expects its media business to shrink.
DMGT, chaired by major shareholder Jonathan Harmsworth, Viscount Rothermere, encompasses newspapers, data providers, conference organisers and insurance risk management. It has reported a £112m pre-tax loss for the financial year to the end of September, but the key reason the share price swooned by almost a quarter was the revelation that DMGT expects a "mid-single digit" decline in media revenues over the next year.
The unit, which includes the Daily Mail, Mail on Sunday and MailOnline website, saw revenue grow by 1% to £683m in the year to September bringing in more than 40% of the group total. This "complicates" chief executive Paul Zwillenberg's plan to show that DMGT is more than a struggling publisher.
Time for a rebranding exercise, says Lex in the FT. The Daily Mail likes to satirise the "corporate gibberish" these campaigns can entail, but renaming DMGT The Rothermere Investment Trust would better describe "what is does and whom it serves". Zwillenberg "readily admits" he is a portfolio manager and that DMGT is a "permanent capital vehicle". The problem? A trust controlled by the Rothschilds has already taken the name RIT.
"No wonder Neil Woodford keeps warning about dangerous' stock market bubbles'," says Alistair Osborne in The Times. Just think how share prices would be rocketing if it wasn't for his dud investments such as Provident Financial. Now, "the legendary stockpicker's done it again". Woodford has 27% of RM2 International, the supplier of a "revolutionary" pallet designed to transform supply chains. "Indeed, so revolutionary has it proved that the company has pretty much run out of money." Since 2014's 88p-a-share float, the share price has fallen to 2.63p. "Not the most palletable news for Mr Woodford."
The Financial Reporting Council has "offered a mea culpa of sorts", says Nils Pratley in The Guardian. FRC head Stephen Haddrill admits that the regulator should have "adopted a more proactive approach" to its early enquiries into HBOS. Too right. HBOS collapsed in 2008, seven months after it reported a profit of £5.5bn. A rapid but thorough probe of KPMG's audit of the bank's 2007 accounts was required. Yet the result of that inquiry only came in September 2017, when the regulator concluded that there was no prospect of a finding of misconduct against KPMG. "Disgracefully slow."
"Can you have too much insurance?" asks Matthew Vincent in FT Lombard. If you are Aviva the FTSE 100 provider of life, home, travel and pet cover, as well as pensions then arguably yes. A few years ago, as part of a new strategy to "kill complexity", CEO Mark Wilson removed hundreds of products and cut 28 markets to 15. This has led to lower costs, higher margins, and higher anticipated earnings growth. Yet staff and shareholders might say that not doing too much has so far at least delivered too little. Until recently, the firm "had only delivered redundancy cheques and a mid-single-digit share price fall over three years".