Rio Tinto Plc · LSE:RIO
Rio Tinto — H1 2016 Earnings Presentation
37 slides from Rio Tinto's earnings presentation, Aug 3, 2016
Slide 1: Notice to ASX: 2016 half year results presentation
Notice to ASX 2016 half year results presentation For personal use only 3 August 2016 Attached is the Rio Tinto 2016 half year results presentation to be given today by Rio Tinto chief executive Jean-Sébastien Jacques, and chief financial officer Chris Lynch. The presentation slides will also be ava
Slide 2: 2016 half year results
03 August 2016 Highlights Financial performance Outlook Appendix For personal use only 2016 half year results
Slide 3: Cautionary statements
2 Cautionary statements For personal use only This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”). By accessing/attending this presentation you acknowledge that you have read and understood the following statement. Forward-looking statements This document contain
Slide 4: J-S Jacques, Chief executive
03 August 2016 Highlights Financial performance Outlook Appendix For personal use only J-S Jacques Chief executive
Slide 5: Delivered shareholder value in H1 2016
4 Delivered shareholder value in H1 2016… For personal use only Net cash from operating activities of $3.2 billion Reduced costs by $0.6 billion Total capex spend of $1.3 billion Disposal proceeds of $0.6 billion received in the half Strong balance sheet with net debt reduced to $12.9 billion Final
Slide 6: Maintained 33% Group EBITDA margins
5 … and maintained 33% Group EBITDA margins For personal use only Iron Ore Aluminium • Pilbara operating FOB EBITDA margins • Integrated operating EBITDA margins of 58% of 25% • Cash flows from operations of $1,690m • Cash flows from operations of $993m and free cash flow of $1,332m and free cash fl
Slide 7: Chris Lynch, Chief financial officer
03 August 2016 Highlights Financial performance Outlook Appendix For personal use only Chris Lynch Chief financial officer
Slide 8: Prices reduced earnings by 65%, partially offset
7 Prices reduced earnings by 65%, partially offset by exchange, energy and management actions For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 2,500 Total cost reductions of $414m post-tax or $580m pre-tax 2,000 410 4 46 1,563 1,500 61 241 1,252 (125) (
Slide 9: Net earnings
8 Net earnings For personal use only US$m H1 2016 underlying earnings 1,563 Impairments/Onerous contracts (503) Losses/gains on disposals 193 Exchange gains/losses on 558 debt and derivatives Restructuring costs and (88) global headcount reductions Other (10) H1 2016 net earnings 1,713 ©2016, Rio Ti
Slide 10: Achieved almost $6.8 billion of cost reductions against 2012 base
9 Achieved almost $6.8 billion of cost reductions against 2012 base For personal use only Pre-tax operating cash cost improvements Reduction vs. 2012 (US$ billion) • Achieved $580 million of the $1 billion 2016 cost target • Cost performance helped deliver a 1.0 8.2 H1 2016 EBITDA margin of 33% (34%
Slide 11: Disciplined capital allocation focuses spend on compelling projects
10 Disciplined capital allocation focuses spend on the most compelling projects For personal use only Capital expenditure profile • Completed two projects in 2015 US$ billion1 • Capital allocation discipline requires project IRR >15% ~5.5 • Growth capital is focused around ~5 4.7 three key approved
Slide 12: Strong balance sheet remains fundamental
11 Strong balance sheet remains fundamental For personal use only Debt and net gearing ratio1 • Net debt levels $0.9 billion lower vs US$ billion Dec. 2015, despite $1.9 billion 29.4 28.3 dividend payment 25.7 24.9 24.8 23.1 • $8.3 billion of cash on hand as at 30 21.2 June 2016 22.1 • Targeting 20-
Slide 13: Gross debt has reduced by almost $2 billion
12 Gross debt has reduced by almost $2 billion For personal use only Bond maturity profile (Dec-15 vs Jun-16) • Gross debt has been reduced during US$ billion H1 2016 5 − $6.0 billion of bonds repurchased or repaid out of cash balance − $4.1 billion of Oyu Tolgoi Project 4 Finance (OTPF) fully conso
Slide 14: Our capital allocation framework
13 Our capital allocation framework For personal use only 1. Essential 2. Ordinary 3. Iterative cycle of sustaining capex dividends Further cash returns to Compelling shareholders growth Debt management ©2016, Rio Tinto, All Rights Reserved
Slide 15: Interim dividend of 45 US cents per share
14 Interim dividend of 45 US cents per share For personal use only • H1 2016 interim dividend of 45 US Balanced capital allocation cents per share declared by Board • Interim dividend equates to Maintain an appropriate balance ~US$809m on gross basis between: • Balance between interim and final to •
Slide 16: J-S Jacques, Chief executive
03 August 2016 Highlights Financial performance Outlook Appendix For personal use only J-S Jacques Chief executive
Slide 17: Market conditions remain volatile
16 Market conditions remain volatile For personal use only Use of credit kick-started housing Medium-term prospects for global growth activity in China Percentage change, year-on-year Percentage growth, year-on-year 40 6 30 Forecast, 5 Sep -2011 Actual 20 Growth Forecast, Oct -2013 4 10 Forecast, Ap
Slide 18: Continual improvement to create value
17 Continual improvement to create value For personal use only World class assets Balance sheet Portfolio strength Disciplined capital Operating excellence allocation Superior Performance shareholder returns Capabilities People & Compelling Partners growth SUPERIOR CASH GENERATION ©2016, Rio Tinto,
Slide 19: Tier 1 assets at the centre of the business
18 Tier 1 assets at the centre of the business For personal use only Copper & Energy & Iron Ore Aluminium Diamonds Minerals Bauxite Oyu Tolgoi, Grasberg Borates, Coal, Main Pilbara First quartile Escondida, Kennecott IOC, TiO2 & businesses smelters & Diamonds Uranium Low-cost, world- Demand-led oper
Slide 20: Safety comes first
19 Safety comes first For personal use only A history of continual improvement in safety AIFR per 200,000 hours worked • Fatality in the Pilbara in 2016 1.4 • Lowest ever injury rates in 2015 • Continued focus on personal and 1.2 process safety across all 1.0 operations 0.8 • Introduction of new Cri
Slide 21: Continually challenge to deliver operational excellence
20 Continually challenge to deliver operational excellence For personal use only H1 2016 haul truck effective utilisation Percentage • Operational excellence is embedded across the Group • Costs and productivity target challenges the business to +30% constantly improve • Growth & Innovation promotes
Slide 22: Commercial capability to capture full value
21 Commercial capability to capture full value For personal use only Iron Ore Aluminium Pilbara Blend Fines achieved average spot price against index1 Value-added product represents >50% of production US$/dmt above Platts 62% index Achieved premia US$ per tonne 1.1 0.8 0.8 227 251 226 62%Fe index 20
Slide 23: Delivering value for years
22 Delivering value for 50 years For personal use only World-class asset low-cost, long-life, expandable Superior shareholder returns Average EBITDA margin of 50% since 1963 Innovative partnerships 10 Land Agreements with Traditional Owners ©2016, Rio Tinto, All Rights Reserved
Slide 24: Focused investment in compelling growth
23 Focused investment in compelling growth For personal use only Al Cu Fe Amrun OT Underground Silvergrass Approved in November 2015 Approved in May 2016 Approved in August 2016 ~20 Mt/a of mine and 22.8 Mt/a of bauxite1 560ktpa2 of copper plant capacity3 Expected IRRs: >20%4 >20%5 >100%6 First prod
Slide 25: Continual improvement to create value
24 Continual improvement to create value For personal use only World class assets Balance sheet strength Portfolio (gearing ratio of 20-30%) Disciplined capital Operating Superior shareholder excellence allocation returns (cash returns of Performance 40-60% of underlying earnings through cycle) Capa
Slide 26: 2016 half year results: Appendix
03 August 2016 Highlights Financial performance Outlook Appendix For personal use only 2016 half year results
Slide 27: Developing people and delivering excellence
26 Developing people and delivering excellence For personal use only CEO JS Jacques CFO Chris Lynch Aluminium Copper Energy Iron Ore Growth Health, Organisation Legal & (Montreal) & Diamonds & Minerals (Perth) & Innovation Safety & Resources Regulatory (London) (London) (Brisbane) Environment (Londo
Slide 28: Robust product group cash flows
27 Robust product group cash flows For personal use only Net cash generated from operating activities ($m) H1’15 H1’16 Iron Ore 2,005 1,690 Aluminium 1,556 993 Copper & Diamonds 867 447 Energy & Minerals 676 469 Product group total 5,104 3,599 Other ops./ other items/ (669) (359) exploration Total 4
Slide 29: Underlying earnings H2 2015 vs H1 2016
28 Prices, lower energy costs and cost reductions partially offset impact of lower volumes and asset write-downs For personal use only Underlying earnings H2 2015 vs H1 2016 US$ million (post tax) 2,000 273 24 90 29 1,681 1,616 1,563 (30) (24) (232) (183) 1,000 0 H2 2015 Price Exchange Energy Inflat
Slide 30: Weaker prices significantly reduced underlying earnings in H1 2016
29 Weaker prices significantly reduced underlying earnings in H1 2016 For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 2,500 2,000 3 10 (23) (28) (63) (72) (79) 1,500 (223) 1,000 (1,899) (661) (763) 500 0 H1 2015 Price underlying earnings ©2016, Rio Tin
Slide 31: Partly offset by exchange rates and energy costs
30 … partly offset by exchange rates and energy costs but with slightly lower volumes For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 3,000 2,923 158 2,500 27 16 2,000 2 0 (7) (37) 1,500 (45) 61 241 1,252 (74) (138) (24) 1,000 (1,899) 500 0 H1 2015 Price Exchange
Slide 32: Iron Ore: cost reductions, volumes, favourable exchange and energy
31 Iron Ore: cost reductions, volumes, favourable exchange and energy partially offset lower prices For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 2,500 2,100 2,000 1,743 101 51 154 63 47 1,438 1,500 (1) (744) (28) 1,000 500 0 H1 2015 Price Exchange Energy Inflat
Slide 33: Aluminium: cost improvements and exchange rates
32 Aluminium: cost improvements and exchange rates partially offset lower prices For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 1,000 793 500 34 377 163 47 157 27 (4) (656) (10) (17) 0 H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration T
Slide 34: Copper & Diamonds: lower prices and volumes
33 Copper & Diamonds: lower prices and volumes significantly lowered earnings For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 500 393 250 15 151 (236) (7) (14) - 1 23 (207) (35) (67) (250) H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploratio
Slide 35: Energy & Minerals: favourable exchange, energy and cost reductions
34 Energy & Minerals: favourable exchange, energy and cost reductions offset lower prices For personal use only Underlying earnings H1 2015 vs H1 2016 US$ million (post tax) 250 74 35 82 111 19 - (12) 122 (15) (50) (2) (250) (250) H1 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Expl
Slide 36: Other movements in underlying earnings
35 Other movements in underlying earnings For personal use only Underlying earnings impact Interest, FX/ Energy & Cash Epl'n tax & US$ million H1 2015 price Inflation Volumes Costs eval'n other H1 2016 Other operations (20) (1) (10) 4 41 - (46) (32) Central Exploration (net) (56) 4 - - - (2) 1 (53)
Slide 37: Modelling earnings
36 Modelling earnings For personal use only H1 2016 ($m) impact on 2016 average price/ underlying earnings of 10% Earnings sensitivity rate price/rate change Copper 213c/lb 204 Aluminium $1,544/t 450 Gold $1,221/oz 36 Iron ore (62% Fe FOB) $48/dmt 761 Coking coal (benchmark) $84/t 58 Thermal coal (a