Bovis and Rio in a tale of two corporates

The contrasting results from Bovis and Rio Tinto provide a telling snapshot of the current economy...

Last Updated: 31 Aug 2010

The first half of 2008 has clearly been the best of times and the worst of times for some of our biggest companies, judging by two very different results statements out this morning. While housebuilder Bovis reported an 84% drop in profits, bemoaning the disastrous state of the UK housing market, mining giant Rio Tinto has seen earnings more than double, thanks to the soaring price of commodities…

Bovis said pre-tax profits fell to a measly £9.5m in the first six months of 2008, down from £58.4m last year – which included restructuring costs of £2.2m as it shed 400 jobs and slashed its cost base. Although its average sale price only fell by a moderate 4%, volumes were way down: it’s currently expecting to sell almost 40% fewer houses in 2008 than it did last year, which has squeezed margins. Bovis CEO David Ritchie said the group had ‘taken decisive action in response to the toughest period of trading it has experienced in its time as a public company’.

Ritchie has also taken the drastic step of slashing the company’s dividend by 75% to try and keep some pennies in the bank. And unlike rival Persimmon last week, he refused to sound even the slightest note of optimism: ‘The Group considers that the current difficult trading environment will continue for the foreseeable future with continued poor mortgage liquidity limiting housing market activity’. This prediction of a winter of despair - coupled with figures that showed mortgage approvals were down 65% last month - dragged down shares across the sector this morning.

Over at Rio Tinto, however, it looks more like a spring of hope, as a bumper set of results boosted its chances of fending off the unwanted advances of rival BHP Billiton. Mining giant Rio said this morning that first-half net profits were up by a massive 113% to $6.9bn. This was partly due to the big hike in commodity prices during the period, which produced about a third of this figure, although Rio said that underlying earnings were up by a very healthy 55%. Chairman Paul Skinner said the ‘outstanding results…clearly demonstrate the quality of Rio Tinto's portfolio and the strength of our existing markets, operations and management.’

One consequence of all this will be that BHP faces an even tougher task to persuade shareholders to back its hostile $147bn takeover bid. Rio has consistently argued that the price is too low, and today’s figures will certainly add weight to this theory. ‘The group's performance in the first half, together with our growth potential, supports the board's view that Rio Tinto presents a very strong stand-alone value proposition for shareholders,’ said Skinner.

So this is the reporting season of Light, as well as the reporting season of Darkness...

In today's bulletin:
Bovis and Rio in a tale of two corporates
Editor's blog: Safety concerns add to airlines' woes
Rock may leave a £1bn hole
TUC argues for 'Community Day'
Books Special: Kaplan and Norton on The Execution Premium

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