Slide 1: 2005 Annual Results Presentation
2005 Annual Results Presentation 2 February 2006 2005 Annual Results presentation 2 February 2006 1
Slide 2: Cautionary statement
Cautionary statement For the purposes of the Forward-Looking Statements Safe Harbor provisions of the US securities laws This presentation contains statements which constitute forward-looking statements within the meaning of the US securities laws. Such statements include, but are not limited to, st
Slide 3: Paul Skinner
Paul Skinner 2005 Annual Results presentation 2 February 2006 3
Slide 4: Presentation outline
Presentation outline Paul Skinner Results and outlook Leigh Clifford Overview of performance Guy Elliott Financial results Leigh Clifford Projects All Questions 2005 Annual Results presentation 2 February 2006 4
Slide 5: Record earnings advance in 2005
Record earnings advance in 2005 $m 2004 2005 5,000 H2 underlying earnings ($m) 4,000 H1 underlying earnings ($m) Underlying 2,272 4,955 +118% 3,000 earnings 2,000 Excluded 1,025 260 items 1,000 Net 3,297 5,215 +58% 0 earnings 2000 2001 2002 2003 2004 2005 * Data for years prior to 2004 are adjusted
Slide 6: Highlights of 2005
Highlights of 2005 • Underlying earnings of $4.96 billion, up 118% • Cash flow of $8.3 billion, up 85% • Capital investment of $2.5 billion, up 13% • Ordinary dividend progressive increase of 4% • $1 billion capital management programme completed • $4 billion further capital management - including $
Slide 7: New development frontiers
New development frontiers • Joint exploration venture with Norilsk Nickel in Russia • Ilmenite project under way in Madagascar • Argentinean potash project in final feasibility • Successful bid for La Granja in Peru • Broadening our geographic scope 2005 Annual Results presentation 2 February 2006 7
Slide 8: Outlook
Outlook • Strong global / Chinese growth Rio Tinto sales to Japan and China (%) • Demand recovery in Japan and 20 Europe • Economic risks remain in USA 10 • Low stocks – limited supply response 0 2003 2004 2005 • Favourable prospects for 2006 Japan China 2005 Annual Results presentation 2 February 2
Slide 9: Leigh Clifford
Leigh Clifford 2005 Annual Results presentation 2 February 2006 9
Slide 10: Focus on safety drives improvement
Focus on safety drives improvement 2 LTIFR per 200,000 Hours W orked 1.5 1 0.5 0 1999 2000 2001 2002 2003 2004 2005 LTIFR = Lost Time Injury Frequency Rate 2005 Annual Results presentation 2 February 2006 10
Slide 11: Strong earnings improvement overall
Strong earnings improvement overall 6,000 Copper +135% 5,000 Iron Ore +205% 4,000 Energy +70% $m 3,000 Aluminium +18% 2,000 Diamonds +49% Ind. minerals -23% 1,000 0 2004 2005 Underlying earnings 2005 Annual Results presentation 2 February 2006 11
Slide 12: Strong EBIT margins
Strong EBIT margins 40 30 % 20 10 0 2000 2001 2002 2003 2004 2005 Group EBIT as a percentage of gross turnover Data for 2003 and prior years are under UK GAAP, from 2004 data are under IFRS 2005 Annual Results presentation 2 February 2006 12
Slide 13: Shortages may impact supply side response
Shortages may impact supply side response • Industry facing skills shortage • Rio Tinto global graduate recruitment strategy in place • Supply constraints – Large off road tyres global shortage – Regional deficits in other consumables • Rio Tinto procurement proving effective 2005 Annual Results pre
Slide 14: Industry cost pressures continue
Industry cost pressures continue Rio Tinto cumulative cost savings v Non ferrous metals price index (real terms) 125 • Cost trends have been adverse since 2003 100 • Some ‘costs’ reflect investment 75 • Continued pressure is likely in 2006 50 1995 = 100 2005 Cumulative cash cost savings Prices 2005
Slide 15: Copper
Copper 60 • Favourable markets 50 • Operations performing well 40 30 • Continued maximisation of 20 molybdenum production at KUC 10 0 • Cortez Hills investment 2004 2005 Product Group EBIT margin in % 2005 Annual Results presentation 2 February 2006 15
Slide 16: Iron ore
Iron ore • Demand remains strong 60 50 • Record production levels 40 • First stage of Dampier port upgrade 30 complete 20 • Next expansion phase at Dampier 10 and Yandi under way 0 • IOC turnaround 2004 2005 Product Group EBIT margin in % 2005 Annual Results presentation 2 February 2006 16
Slide 17: Energy
Energy 30 • Coal operations performing well but infrastructure limitations continue 20 • Powder River Basin rail maintenance complete 10 • Price of coking coal firm, lower qualities softer 0 2004 2005 • Rössing life extension Product Group EBIT margin in % 2005 Annual Results presentation 2 February
Slide 18: Aluminium
Aluminium • Weipa expansion to over 16 mtpa 30 • Rising alumina production, 20 Comalco Alumina Refinery ramping up • Record production year for three 10 smelters 0 • Alumina strong 2004 2005 • Aluminium outlook improving Product Group EBIT margin in % 2005 Annual Results presentation 2 February 2006
Slide 19: Diamonds
Diamonds 50 • Strong demand for rough diamonds 40 • Argyle underground progressing 30 20 • Diavik development ahead of schedule 10 • Good contribution from Murowa 0 2004 2005 Product Group EBIT margin in % 2005 Annual Results presentation 2 February 2006 19
Slide 20: Industrial minerals
Industrial minerals 20 • New Rio Tinto Minerals structure • Rio Tinto Iron and Titanium – UGS plant expansion 10 – Madagascar construction under way – Improving market outlook 0 2004 2005 Product Group EBIT margin in % 2005 Annual Results presentation 2 February 2006 20
Slide 21: Operational summary
Operational summary • Many operations setting production records • Project delivery remains a key focus • Managing industry wide shortages and cost pressures • Improving Performance Together will transform the business 2005 Annual Results presentation 2 February 2006 21
Slide 22: Guy Elliott
Guy Elliott 2005 Annual Results presentation 2 February 2006 22
Slide 23: Markets deliver strong earnings growth
Markets deliver strong earnings growth 5,000 2,374 123 141 4,382 4,000 $m 3,000 2,272 2,000 1,000 0 2004 Underlying Prices Exchange Inflation earnings 2005 Annual Results presentation 2 February 2006 23
Slide 24: Price rises in all major Group products
Price rises in all major Group products Iron ore 976 Copper 482 Thermal coal 277 Coking coal 196 Moly 152 Aluminium 106 Industrial minerals 71 Earnings impact from Diamonds 55 price $2,374 million Gold 38 Uranium 28 Alumina 19 Other -26 -100 100 300 500 700 900 $m 2005 Annual Results presentation 2
Slide 25: Volume increases a major contributor to earnings
Volume increases a major contributor to earnings 6,000 1,140 5,000 2,374 123 141 4,382 4,000 $m 3,000 2,272 2,000 1,000 0 2004 Underlying Prices Exchange Inflation Volumes earnings 2005 Annual Results presentation 2 February 2006 25
Slide 26: Record volume gains from moly and iron ore
Record volume gains from moly and iron ore Molybdenum 457 Iron ore 270 Gold 164 Diamonds 93 Copper 64 Aluminium 34 Volume contribution to Industrial Minerals 27 earnings $1,140m Energy 17 Other 14 $m 0 100 200 300 400 500 2005 Annual Results presentation 2 February 2006 26
Slide 27: Industry cost pressures offset some of the gains
Industry cost pressures offset some of the gains 6,000 1,140 598 5,000 2,374 123 141 4,382 4,000 $m 3,000 2,272 2,000 1,000 0 2004 Underlying Prices Exchange Inflation Volumes Costs earnings 2005 Annual Results presentation 2 February 2006 27
Slide 28: Cost impact on underlying earnings
Cost impact on underlying earnings Non Input Cost of Expl’n & Business One off Energy Improvement cash prices prod’n Eval’n $m costs -10 -30 -50 -70 -90 -110 “Investment” costs $70m + -130 Common industry costs $330m+ -150 2005 Annual Results presentation 2 February 2006 28
Slide 29: Other variance collectively not significant
Other variance collectively not significant 6,000 1,140 598 31 4,955 5,000 2,374 123 141 4,382 4,000 $m 3,000 2,272 2,000 1,000 0 2005 2004 Underlying Prices Exchange Inflation Volumes Costs Other Underlying earnings earnings 2005 Annual Results presentation 2 February 2006 29
Slide 30: Outstanding operational cash flow generation
Outstanding operational cash flow generation Cash flow from operations Dividends from JCEs & associates 8,000 6,000 $m 4,000 2,000 0 00 01 02 03 04 05 Cash from operations excludes cash flows relating to capital expenditure, acquisitions & divestments, interest, tax, dividends and exploration. Pre 2
Slide 31: Balance sheet strength supports capital returns
Balance sheet strength supports capital returns $m Net debt Net debt / total capital (%) 7,000 Interest cover (times) 70 6,000 60 5,000 50 4,000 40 3,000 30 2,000 20 1,000 10 0 0 96 97 98 99 00 01 02 03 04 05 Net debt, interest cover and gearing ratios are as at the period ending 31 December. 1996 t
Slide 32: Growth options lead to increased capital spending
Growth options lead to increased capital spending Capital investment $3bn+ $3bn+ 3,000 $m 2,000 1,000 0 00 01 02 03 04 05 06 F 07 F Pre 2004 data are under UK GAAP, from 2004 they are under IFRS. 2005 Annual Results presentation 2 February 2006 32
Slide 33: Strong progressive dividend history
Strong progressive dividend history 2,500 200 2,000 4% progressive increase in 2005 150 20% rebasing in 2004 1,500 100 DLC 1,000 RTZ plc dividend Rio Tinto dividend 50 500 £ 1975=100 (lhs) US$ 1996=100 (rhs) 0 0 1975 1980 1985 1990 1995 2000 2005 2005 Annual Results presentation 2 February 2006 33
Slide 34: Return of $4 billion to shareholders during 2006-07
Return of $4 billion to shareholders during 2006-07 • Buyback of $1 billion completed to date • Replaced by new buyback of $2.5 billion before end of 2007 • Special dividend of $1.5 billion ($1.10 per share) in April 2006 2005 Annual Results presentation 2 February 2006 34
Slide 35: Leigh Clifford
Leigh Clifford 2005 Annual Results presentation 2 February 2006 35
Slide 36: Hope Downs expands position in iron ore
Hope Downs expands position in iron ore Port Hedland • Feasibility study close to Cape Lambert completion Dampier N 0 km 100 • Positive customer response • First phase capacity likely to Robe be 22mpta Brockman 2 Marandoo • Production in 2008 Tom Price Yandicoogina Hope Downs • Additional growth opt
Slide 37: Valuable new opportunities in Russia
Valuable new opportunities in Russia • Joint venture with Norilsk Nickel • Rapid and unrivalled entry into Russia • Strong local partner • Significant exploration and development potential 2005 Annual Results presentation 2 February 2006 37
Slide 38: Projects extending production
Projects extending production KUC pushback Committed Escondida Norte Rossing $1.3 billion Argyle u/g Grasberg Big Gossan Advanced study Northparkes E48 Clermont Diavik u/g Pilbara options Conceptual Green Creek extensions Northparkes extensions Pilbara resource additions KUC extensions and undergrou
Slide 39: Incremental growth projects
Incremental growth projects Pilbara mine capacity HIsmelt Hamersley port & rail Kennecott Land Escondida SL Committed Grasberg DOZ Cortez Hills Hail Creek to 8mt $3.5 billion West Antelope UGS to 375 kt Madagascar Ti 02 Advanced study Hope Downs Eagle Grasberg u/g Diavik Simandou Mt. Pleasant Sari G
Slide 40: Summary
Summary • Business in great financial shape • Good operational and project performance • Managing cost pressures • Significant capital investment plans and future growth opportunities • Major return of capital to shareholders • Outlook for 2006 is positive 2005 Annual Results presentation 2 February
Slide 41: 2005 Annual Results Presentation
2005 Annual Results Presentation 2 February 2006 2005 Annual Results presentation 2 February 2006 41
Slide 42: Changes in underlying earnings
HANDOUT Changes in underlying earnings $millions 2004 Selling Exchange Inflation Sales Costs Tax & 2005 prices rates vols other Iron ore 565 980 (12) (18) 270 (51) (12) 1,722 Energy 431 501 (18) (41) 8 (140) (8) 733 Industrial Minerals 243 71 (36) (14) 27 (92) (12) 187 Aluminium 331 125 (32) (34) 34
Slide 43: Exchange rate effect limited
HANDOUT Exchange rate effect limited 20 A$ C$ Rand NZ$ Euro Other 10 (64) (35) (3) (3) (3) (15) 0 $m -10 -20 -30 -40 Total non A$ -50 (59) -60 -70 Earnings impact $(123) million 2005 Annual Results presentation 2 February 2006 43
Slide 44: Limited effect of currency on balance sheet items
HANDOUT Limited effect of currency on balance sheet items $m (121) (2) Monetary items -25 Operating costs -75 -125 Profit impact $(123) million 2005 Annual Results presentation 2 February 2006 44
Slide 45: Smaller contribution from excluded items
HANDOUT Smaller contribution from excluded items Underlying earnings Excluded items 6,000 260 List of assets sold in: 5,000 2004 2005 Boke LIORIF 4,000 1025 FCX shares Lihir shares US$m Fortaleza US royalties 3,000 Morro do Ouro 2,000 Sepon Somincor 1,000 Zinkgruvan 0 2004 2005 Group net earnings 20
Slide 46: Breakdown of items excluded from underlying earnings
Breakdown of items excluded from underlying earnings (handout only) $millions Pre-tax Taxation Outside Net amount Net amount interests 2005 2004 Underlying earnings 7,114 (1,867) (292) 4,955 2,272 Gains relating to disposals of interests in businesses and 322 (11) - 311 1,175 undeveloped properties
Slide 47: Earnings reconciliations
Earnings reconciliations (handout only) Palabora US$m Earnings per Palabora press release (-R93m) (15) Add interest shown centrally by Rio Tinto (-R355m) 56 Less: minority interest (52.8%) (22) Underlying earnings as reported by Rio Tinto 19 Coal & Allied Earnings per Coal & Allied press release(A$2
Slide 48: Analysis of interest
HANDOUT Analysis of interest Year ended 31 December US$ millions 2005 2004 Per cash flow statement Interest received 51 28 Interest paid (179) (179) Net interest per cash flow (128) (151) Interest capitalised 28 35 Change in accruals 9 (4) Subsidiary interest per Income Statement (91) (120) Taxation
Slide 49: Variance analysis methodology
HANDOUT Variance analysis methodology • Price = Change in commodity price x prior year sales volumes • Exchange = (Change in exchange rates x Prior year cost of sales) + Relative movements in exchange gains and losses on working capital • Inflation = Inflation rate x Prior year cash cost of sales •
Slide 50: A strong portfolio of exploration projects
HANDOUT A strong portfolio of exploration projects Alaska Siberian copper / gold exploration j.v. Coking Coking coal coal Eagle nickel Turkey copper Resolution copper Sari Gunay gold Simandou iron Diamonds Bauxite La La Granja Granja copper copper Ilmenite Nickel Ilmenite Nickel Diamonds Pilbara dev