Rio Tinto Plc · LSE:RIO
Rio Tinto — H1 2018 Earnings Presentation
41 slides from Rio Tinto's earnings presentation, Aug 1, 2018
Slide 1: 2018 half year results
2018 half year results 1 August 2018 London
Slide 2: Cautionary statements
2 Cautionary statements 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, including but not limited to
Slide 3: J-S Jacques, Chief executive
RioTinto J-S Jacques Chief executive
Slide 4: Our strategy is delivering
4 Our strategy is delivering Total cash returns to shareholders of $7.2 billion, comprising: - Interim returns of $3.2 billion (including dividend of $2.2 billion, 127 US cents per share) - Disposal proceeds of $4.0 billion EBITDA of $9.2 billion, margin of 43% Reshaping the portfolio with div
Slide 5: Strong results delivered in H1 2018
5 Strong results delivered in H1 2018 Robust financial performance Disciplined capital allocation Positioning for the long-term AutoHaulTM delivering flexibility and increased EBITDA of $9.2 billion Interim 2018 dividend of $2.2 billion capacity in the Pilbara Operating cash flow of $5.2 billion Add
Slide 6: Safety and health come first
6 Safety and health come first Continuing history of improvement in AIFR Fatality at Rio Tinto Fer et Titane in April 2018 Fatal assault on a security contractor at Richards Bay Rio Tinto ICMM (23 companies) Minerals in July 2018 2.78 All injury frequency rate per 200,000 hours Eliminating fatalitie
Slide 7: Strong cash flow from world-class assets
7 Strong cash flow from world-class assets Copper & Energy & Iron Ore Aluminium Diamonds Minerals 67% 35% 45% 36% Margins Pilbara operations FOB Integrated operations EBITDA margin EBITDA margin EBITDA margin EBITDA margin Cash flows from Cash flows from Cash flows from Cash flows from operations: $
Slide 8: Further strengthening our world-class portfolio
8 Further strengthening our world-class portfolio Successful divestment programme. Since 2017: c.$8bn of disposals – Exiting thermal coal and coking coal assets Cost curve position, scale and expandability announced since 2017 Core – Exiting European smelters portfolio Thermal coal Continuous portfo
Slide 9: Chris Lynch, Chief financial officer
Chris Lynch Chief financial officer
Slide 10: Robust pricing across most commodities
10 Robust pricing across most commodities Iron Ore Aluminium 90 $/dmt 62%, FOB WA $/dmt 58%, FOB WA 3,250 $/t LME + MW Premium Iron ore prices underpinned by record steel 3,000 80 production in China. Steel and iron ore 2,750 70 2,500 inventories drawing down 60 2,250 50 2,000 ~40% 40 1,750 Aluminiu
Slide 11: EBITDA driven by higher pricing and increased volumes, offsetting cost headwinds
11 EBITDA driven by higher pricing and increased volumes, offsetting cost headwinds Underlying EBITDA H1 2017 vs H1 2018 $ billion 12 0.9 10 9.0 0.6 9.2 9.2 (0.3) (0.1) (0.2) (0.2) (0.1) (0.4) 8 6 4 2 0 H1 2017 Price Exchange Energy CPI Flexed H1 2017 Volumes & mix Raw material Other cash One-offs a
Slide 12: Inflation is challenging the industry
12 Inflation is challenging the industry Australian & US headline CPI increasing Return of inflation in the US driving an increase in % the federal funds rate 4.0 US Federal Funds Rate US CPI Australian CPI 3.0 Higher input energy prices impacted EBITDA by 2.0 $0.2 billion in H1 2018 1.0 Raw materia
Slide 13: Productivity programme on track despite cost headwinds
13 Productivity programme on track despite cost headwinds Post-tax mine-to-market (M2M) productivity programme $ billion (free cash flow) 1.1 $0.3 billion mine-to-market free cash flow (net of cost headwinds) delivered in H1 2018 – Cost headwinds from Aluminium and Energy & (0.2) Minerals raw materi
Slide 14: Strategic disposals announced since 2017
14 Strategic disposals announced since 2017 $7.7 billion disposals announced since 2017 Value delivered through divestments $ billion 2017: Coal & Allied: $2.7 billion 5.0 7.7 2018: Coking coal: $4.15 billion – Kestrel and Hail Creek sales completed on 1 August 2018 – Winchester South sale completed
Slide 15: Disciplined capital allocation
15 Disciplined capital allocation $8.5 billion paid to shareholders over the last 12 months* ($ billion) 2.3 Essential Sustaining 1 sustaining capex capital 8.5 Further cash Compelling Cash returned returns to Growth 2.8 Ordinary growth to shareholders shareholders capital 2 dividends Balance Iterat
Slide 16: Sustaining capital and compelling growth
16 Sustaining capital and compelling growth Capital expenditure profile Maintained sustaining capital guidance of $2.0 to $2.5 $ billion billion per year, including: ~6.5 – Iron Ore sustaining capex of ~$1 billion per year ~6.0 ~5.5 Pilbara replacement capital of ~$2.7 billion includes Koodaideri de
Slide 17: Strong balance sheet
17 Strong balance sheet Net debt Net debt of $5.2 billion $ billion Cash outflows in H1 2018: 7.6 – $1.2 billion final Australian tax payment pertaining to 2017 profits 5.2 – $4.7 billion in returns to shareholders 5.0 – $2.4 billion in capital expenditure 3.8 Gross debt reduced by $2.1 billion in H
Slide 18: Delivering superior returns for shareholders
18 Delivering superior returns for shareholders 2018 cash returns to shareholders* Interim 2018 returns to shareholders of $3.2 billion $ billion announced 1.0 9.3 – Interim dividend of $2.2 billion or 127 US cents per 2.2 share to be paid in September 2018 1.4 – Additional share buy-back of $1.0 bi
Slide 19: Announced divestment proceeds will be returned to shareholders
19 Announced divestment proceeds will be returned to shareholders Additional disposal proceeds Disposals of $4.15 billion (pre-tax) completed for $ billion coking coal assets: Completed – Estimated total tax payable in the order of Completed 0.2 1.7 0.3 $1 billion 4.2 0.5 ~4.0 Dunkerque and ISAL s
Slide 20: J-S Jacques, Chief executive
RioTinto J-S Jacques Chief executive
Slide 21: Global macro indicators remain supportive
21 Global macro indicators remain supportive Global PMIs have eased but remain in expansion Chinese growth slowing very gradually 10 65 8 YoY ytd % real 60 6 55 PMI Index 4 50 2 45 US Eurozone China Japan 40 0 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17
Slide 22: China supply-side reform and tightening environmental policy have driven structural change
22 China supply-side reform and tightening environmental policy have driven structural change Supply side reform Environmental policies Driving structural change Improved productivity and Policies focused on restoring Environmental protection profitability of Chinese steel profitability and reducing
Slide 23: Challenging global environment demands a resilient business
23 Challenging global environment demands a resilient business A portfolio of world-class assets – EBITDA margin of 43% – Operating cash flow of $5.2 billion – Investing in Tier 1 growth Maintaining a strong balance sheet – Net debt of $5.2 billion Continued focus on cash – $5 billion mine-to-market
Slide 24: High-return growth optionality
24 High-return growth optionality Iron Ore Aluminium Copper Industrial Minerals Optimising the world’s premier iron Building optionality into the lowest Building the largest and highest Extensive exploration programme ore business cost bauxite and aluminium business quality copper development and hi
Slide 25: Our strategy will deliver value through the cycle
25 Our strategy will deliver value through the cycle Superior cash generation World-class assets Operating excellence Capabilities Portfolio Performance People & Partners Disciplined capital allocation Balance sheet strength Superior shareholder returns Compelling growth ©2018, Rio Tinto, All Rights
Slide 26: Our strategy is delivering
26 Our strategy is delivering Total cash returns to shareholders of $7.2 billion, comprising: - Interim returns of $3.2 billion (including dividend of $2.2 billion, 127 US cents per share) - Disposal proceeds of $4.0 billion EBITDA of $9.2 billion, margin of 43% Reshaping the portfolio with di
Slide 27: Appendix
RioTinto Appendix
Slide 28: Strong aluminium and copper prices partially offset by lower iron ore prices
28 Strong aluminium and copper prices partially offset by lower iron ore prices EBITDA H1 2017 vs H1 2018 $ million 10,000 604 9,042 Aluminium* Copper Minerals Uranium Coal Diamonds Iron ore Other, net 8,000 700 557 252 151 116 200 37 29 12 6,000 -300 4,000 (550) -800 2,000 0 H1 2017 Price underlyin
Slide 29: Strong sales in iron ore, copper and aluminium
29 Strong sales in iron ore, copper and aluminium EBITDA H1 2017 vs H1 2018 $ million 532 12,000 887 10,000 604 9,042 9,209 (131) (161) (145) 168 136 8,000 61 28 6,000 (6) (13) (19) 4,000 2,000 0 H1 2017 Price Exchange Energy Inflation Flexed Volumes underlying rates H1 2017 & Mix EBITDA underlying
Slide 30: Iron Ore: our low-cost advantage has been sustained over many years
30 Iron Ore: our low-cost advantage has been sustained over many years Pilbara cash unit cost H1 2018 cash unit cost of $13.4/t (3% lower than H1 2017) $ per tonne Focus remains on maintaining consistently attractive FOB EBITDA margins (67% in H1 2018) 20.4 – ~10% increase in haul distance for 2018;
Slide 31: Iron Ore: increased sales and cost savings partly offset by lower prices
31 Iron Ore: increased sales and cost savings partly offset by lower prices Underlying EBITDA H1 2017 vs H1 2018 $ million 6,000 5,607 132 41 5,656 4,963 520 (542) (27) (41) (34) 4,000 2,000 0 H1 2017 Price Exchange rates Energy Inflation Flexed Volumes & Mix Cash costs Other H1 2018 underlying H1 2
Slide 32: Aluminium: higher prices and volumes & mix partly offset by raw material costs
32 Aluminium: higher prices and volumes & mix partly offset by increasing raw material cost headwinds Underlying EBITDA H1 2017 vs H1 2018 $ million 2,500 557 168 2,074 2,000 1,831 1,666 (45) (57) (47) (255) 1,500 (156) 1,000 500 0 H1 2017 Price Exchange rates Energy Inflation Flexed Volumes Cash co
Slide 33: Copper & Diamonds: higher prices and volumes driving increased EBITDA
33 Copper & Diamonds: higher prices and volumes driving increased EBITDA Underlying EBITDA H1 2017 vs H1 2018 $ million 1,500 191 29 1,360 202 1,250 291 1,016 1,000 (48) (30) 771 (11) (14) (21) 750 500 250 0 H1 2017 Price Exchange Energy Inflation Flexed Volumes & Cash costs Exploration & H1 2017 on
Slide 34: Energy & Minerals: higher prices offset by one-offs and divestment of Coal & Allied
34 Energy & Minerals: higher prices offset by one-offs and the divestment of Coal & Allied Underlying EBITDA H1 2017 vs H1 2018 $ million 1,750 203 1,540 1,434 1,500 (50) (3) (44) 1,250 52 1,037 (9) 195 1,000 (333) (108) 750 (236) (64) 500 250 0 H1 2017 Price Exchange Energy Inflation Flexed H1 Coal
Slide 35: Other movements in EBITDA
35 Other movements in EBITDA Underlying EBITDA impact Energy & One-offs & $ million H1 2017 FX/ price Inflation Volumes Cash Costs Epl'n eval'n Non Cash other H1 2018 Other operations - 99 (45) 6 (47) - (59) 19 (27) Exploration & Evaluation (net) (85) - - - - (15) - - (100) Other (351) (2) - - (66)
Slide 36: Near-term maturities further reduced in 2018
36 Near-term maturities further reduced in 2018 $(m) 31 December 2017 debt maturity profile* 3,000 Gross debt reduced by $2.1 billion in H1 2018 of 2,000 which $1.9 billion nominal value of bonds was 1,000 purchased with cash 0 Average outstanding debt maturity at ~11 years 2034-2039 2018 2019 2020
Slide 37: Rigorous measurement of productivity gains
37 Rigorous measurement of productivity gains Accounting basis – Free cash flow basis, Rio Tinto share, post-tax Price – Actual price achieved each year – not a constant or rebased price Commercial excellence – Variation of product mix included Volumes – Tonnes from growth capex excluded – Adjustmen
Slide 38: Modelling EBITDA
38 Modelling EBITDA H1 2018 ($m) impact on FY 2018 underlying EBITDA of average price/ EBITDA sensitivity 10% price/rate change rate Copper 315c/lb 456 Aluminium $2,209/t 849 Gold $1,318/oz 49 Iron ore (62% Fe FOB) $62/dmt 1,496 A$ 77USc 636 C$ 78USc 151 Oil $68/bbl 62 Note: The sensitivities give t
Slide 39: Net earnings
39 Net earnings US$m H1 2018 underlying earnings 4,416 Impairments (98) Net gains on consolidation and disposal 146 of interests in businesses Exchange gains/losses on 388 debt and derivatives Adjustments to tax charge (472) relating to expected divestments H1 2018 net earnings 4,380 ©2018, Rio Tint
Slide 40: Uses of cash over past 12 months
40 Uses of cash over past 12 months Uses of cash H2 2017 H1 2018 Total ($ billion) Sustaining capex 1.3 1.0 2.3 Growth capex 1.4 1.4 2.8 Balance sheet 3.8 (1.4) 2.4 Shareholder returns 3.8 4.7 8.5 Interim dividend 2.0 - 2.0 FY dividend - 3.2 3.2 Share buy-backs 1.8 1.5 3.3 ©2018, Rio Tinto, All Righ
Slide 41: Application of the returns policy
41 Application of the returns policy Capital return considerations Comments Underlying EBITDA up 2% to $9.2 billion Results for 2018 H1 Operating cash flow of $5.2 billion Commissioned Silvergrass, focused on Amrun and Oyu Tolgoi Long term growth prospects Ongoing exploration and evaluation programm