Rio Tinto Plc · LSE:RIO
Rio Tinto — FY2019 Earnings Presentation
60 slides from Rio Tinto's earnings presentation, Feb 26, 2020
Slide 1: Notice to ASX: 2019 Full year results presentation
Notice to ASX 2019 Full year results presentation For personal use only 26 February 2020 Attached is the Rio Tinto 2019 full year results presentation to be given today by Rio Tinto chief executive Jean-Sébastien Jacques, and chief financial officer Jakob Stausholm. The presentation slides are also
Slide 2: Contacts
Contacts For personal use only media.enquiries@riotinto.com riotinto.com Follow @RioTinto on Twitter Media Relations, United Kingdom Media Relations, Australia Illtud Harri Jonathan Rose M +44 7920 503 600 T +61 3 9283 3088 M +61 447 028 913 David Outhwaite T +44 20 7781 1623 Matt Chambers M +44 778
Slide 3: 2019 Full Year Results
For personal use only 2019 Full Year Results 26 February 2020 London
Slide 4: Cautionary and supporting statements
Cautionary and supporting 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 doc
Slide 5: J-S Jacques, Chief Executive
For personal use only J-S Jacques Chief Executive
Slide 6: As pioneers in mining and metals we produce materials essential to human progress
As pioneers in mining and metals we produce materials essential to human progress For personal use only Fe Cu Al Ni Li Perform & Transform Perform today Transform for tomorrow Portfolio Performance People Partners 4 ©2020, Rio Tinto, All Rights Reserved
Slide 7: A strong performance in 2019
A strong performance in 2019 Safety is our top priority. Strong safety performance across the For personal use only business and first ever fatality-free year Financial performance $21.2 billion $11.9 billion Underlying EBITDA Paid to shareholders 47% 24% Underlying EBITDA margin ROCE** $10.0 billio
Slide 8: Sustainability performance supported by strong profitability
Sustainability performance supported by strong profitability For personal use only No fatalities in 2019 46% reduction1 ~$7.5 billion in emissions since 2008 paid in taxes and $17 billion royalties paid to suppliers 76% of power from renewables ASI 2 $36 No 2 in global certified million3 human right
Slide 9: $11.9bn of cash returns paid in 2019 with $3.9bn in H1 2020
$11.9bn of cash returns paid in 2019 with $3.9bn in H1 2020 For personal use only $2.9bn $6.4bn $3.7bn + 2019 final ordinary Sustaining capex Ordinary and special dividends paid dividend to be paid in 2020 47% $2.6bn EBITDA margin Development capex $15.8bn $1.6bn of operating Buy-backs 41% TSR3 24%
Slide 10: Jakob Stausholm, Chief Financial Officer
For personal use only Jakob Stausholm Chief Financial Officer
Slide 11: Strong financial results
Strong financial results For personal use only ($bn, except for per share data) 2019 2018 Comparison Gross revenue 45.4 42.8 + 6% Underlying EBITDA 21.2 18.1 + 17% ROCE 24% 19% + 5pp Cash flow from operations1 15.8 11.9 + 32% Free cash flow1 10.0 7.1 + 42% Underlying earnings 10.4 8.8 + 18% Underlyi
Slide 12: EBITDA supported by price
EBITDA supported by price For personal use only Underlying EBITDA $ billion 0.5 4.4 0.2 (0.2) 21.6 (0.0) 21.2 (0.5) 18.1 1.2 16.9 2018 Price Exchange CPI & Flexed 2018 Incremental Unit cash Other and 2019 underlying rates energy underlying volume costs one-offs underlying EBITDA EBITDA margin EBITDA
Slide 13: Commodity prices moved in different directions
Commodity prices moved in different directions For personal use only Iron Ore* (39% increase YoY) Aluminium** (-15% decrease YoY) Copper** (-8% decrease YoY) 120 2800 550 340 110 330 2600 500 320 100 450 310 2400 90 300 400 80 2200 290 350 280 70 2000 270 300 60 260 1800 250 50 250 40 1600 200 240 6
Slide 14: Maintained industry-leading profitability
Maintained industry-leading profitability.… For personal use only Return on invested capital*, post tax Average ROCE 2009 to 2019 of 16% 35% Average ROCE 2001 to 2008 of 22% 30% Only one year of single digit ROCE in two decades 25% 20% 15% 10% 5% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Slide 15: ...which we continue to translate into strong cash flows
…which we continue to translate into strong cash flows For personal use only Cash flow in $ billion 20.0 Capital allocation framework in action 18.3 15.1 15.8 13.7 14.3 New returns 14.1 policy 11.9 9.2 9.4 9.4 9.7 10.0 7.7 8.5 6.9 7.1 5.8 4.8 3.9 2.1 (8.1) 2009 2010 2011 2012 2013 2014 2015 2016 201
Slide 16: Iron Ore
Iron Ore World-class returns underpinned by robust For personal use only price environment Operating metrics 2019 2018 2020 Strong financial results comparison guidance Average realised price* $85.9 / t + 37% Robust second half performance demonstrates operational recovery Shipments (100% basis) 327
Slide 17: Aluminium
Aluminium Focus on cash generation with price and cost For personal use only impacting profitability Operating metrics 2019 2018 2020 Lower prices impacted EBITDA by comparison guidance $1.3 billion Average aluminium price* $2,132 / t - 14% Average alumina price** $331 / t - 30% – Partly offset by $
Slide 18: A strong global aluminium business
A strong global aluminium business For personal use only Upstream EBITDA margins* (%) Margin gap: portfolio quality and performance delivery 40 2019 EBITDA margin 26% 35 30 25 20 +15pp 15 10 5 0 H1 17 H2 17 H1 18 H2 18 H1 19 H2 19 Rio Tinto Range for key aluminium peers *Aluminium underlying EBITDA
Slide 19: Copper & Diamonds
Copper & Diamonds… Good operating performance masked by lower For personal use only price and one-off items Operating metrics 2019 2018 2020 EBITDA and margin impacted by price comparison guidance and several factors: Copper price (realised) 275 c/lb - 7% – $0.2 billion charge at Escondida Productio
Slide 20: Energy & Minerals
Energy & Minerals Recovery from 2018 disruptions and solid pricing For personal use only Operating metrics 2019 2018 2020 Strong pricing and operational recovery comparison guidance driving 41% increase in EBITDA excluding coal assets divested in 2018 IOC pellets price $137 / t + 20% TiO2 slag price
Slide 21: Disciplined allocation of capital
Disciplined allocation of capital For personal use only Essential 1 sustaining capex Further cash returns to Compelling Ordinary 2 dividends shareholders growth Iterative 3 cycle of Debt management 19 ©2020, Rio Tinto, All Rights Reserved
Slide 22: Controlled ramp-up of investments
Controlled ramp-up of investments For personal use only Capital expenditure profile $ billion ~7.0 2019 capex of $5.5 billion ~6.5 ~6.5 - Sustaining capex of $2.9 billion 5.4 5.5 - Development and replacement capex Depreciation of $2.6 billion 4.5 $1 billion climate-related spend over five years. Ca
Slide 23: Our strong balance sheet...
Our strong balance sheet… For personal use only Net debt Operating cash flow of $14.9 billion after $ billion payment of $0.9 billion of capital gains 5.5 tax on coking coal disposals completed in 2018 1.6 Total cash returns to shareholders 10.3 $11.9 billion in 2019 Non-cash increase of $1.2 billio
Slide 24: ...is an asset
…is an asset For personal use only Net debt Balance sheet strength is an asset. $ billion Offers resilience and creates optionality. 14.1 Gearing 7% and net debt to LTM^ EBITDA of 0.17x 12.9 11.3 10.0 $0.2 billion of share buy-backs to be 9.3 9.3 completed by end of February 2020 8.0 9.6 7.6 5.2 5.6
Slide 25: Shareholder returns based on a well defined pay-out policy
Shareholder returns based on a well defined pay-out policy For personal use only Our pay-out ratio has consistently exceeded the policy Final ordinary dividend for 2019 of $3.7 160% billion or 231 US cents per share to be paid in April 2020 140% Total declared dividend for 2019 of $7.2 120% billion
Slide 26: Our investment case
Our investment case For personal use only Our Assets Our Approach Our Performance Long life Sustainability (ESG) 2019 ROCE2 Competitive Operational Excellence $10.4 billion earnings1 24% Expandable + Value over volume = $10.0 billion free cash flow3 23% Sustainable Capital discipline $11.9 billion d
Slide 27: J-S Jacques, Chief Executive
For personal use only J-S Jacques Chief Executive
Slide 28: Rio Tinto is well positioned to deal with short-term volatility
Rio Tinto is well positioned to deal with short-term volatility … For personal use only China daily property sales Global economic growth k sqm 1200 Day 0 = First day of Chinese New Year – Signs of stabilisation and some demand recovery in 1000 late 2019 800 – Supportive policy and restocking 600 40
Slide 29: ...with low-cost assets and strong balance sheet
…with low-cost assets and strong balance sheet For personal use only Low-cost assets Strong balance sheet ($ billion) 2020 iron ore cost curve (2020 CFR VIU adjusted costs)** 90 11.3 60 9.6 30 9.3 0 8.0 0% 25% 50% 75% 99% Rio Tinto Pilbara 4.9 2020 aluminium cost curve (2020 real $/t) 3.8 3.7 2500 2
Slide 30: Pressures are growing in a 'New Era' of complexity
Pressures are growing in a ‘New Era’ of complexity For personal use only Growing geopolitical tensions Higher societal expectations Technological disruptions 28 ©2020, Rio Tinto, All Rights Reserved
Slide 31: Transforming for tomorrow
Transforming for tomorrow For personal use only Exploration Strong Building our sustainable Organic growth portfolio M&A watching brief free cash flow of the future New commodities per share Enhancing the Safety efficiency and Mine tailings Shareholder sustainability of Innovation for productivity r
Slide 32: Climate change portfolio matrix
Climate change portfolio matrix; 32Mt CO2e in 20181 For personal use only low Diamonds Copper Uranium Pilbara Carbon intensity (tCO2e / tCu-eq) Borates IOC Atlantic Al Bauxite & Alumina TiO2 Size of bubble Pacific Al represents absolute emissions, scope 1 & 2, high Mt CO2e low EBITDA margin (%) / co
Slide 33: Our assets mirror global demand themes
Our assets mirror global demand themes For personal use only Minerals & Copper Iron Ore Aluminium Ventures Exploration Well-timed World leader World leader Products for World leading growth the future Transition to the Urbanisation Electrification low-carbon economy 31 ©2020, Rio Tinto, All Rights R
Slide 34: Growth is all about value: invest in assets and create options through exploration
Growth is all about value: invest in assets and create options through exploration For personal use only $2.6 billion Quality Margins Returns Development growth capital invested Focus on most promising exploration opportunities $0.6 billion Spent on exploration and evaluation >200 17 countries Oppor
Slide 35: We are accelerating Winu
We are accelerating Winu For personal use only Extensive drilling & geophysical programmes completed. Drilled 16 km in 2018 and 124 km in 2019. Initial environmental and sub fauna base line studies completed. Other studies well advanced including: geotechnical, hydrology, mining, processing, basic e
Slide 36: We need an honest debate amongst stakeholders
We need an honest debate amongst stakeholders For personal use only Consumers Climate Shareholders change & partnership Business Government 34 ©2020, Rio Tinto, All Rights Reserved
Slide 37: Our climate change strategy is in four areas
Our climate change strategy is in four areas – track record of performance against each For personal use only 01 02 03 04 Producing the materials Reducing the carbon Partnering to reduce Enhancing our resilience for a low carbon future footprint of our operations the carbon footprint to physical cli
Slide 38: Our climate change strategy update
Our climate change strategy update For personal use only We do not mine coal or extract oil and gas Our targets1 30% reduction in emissions intensity by 2030 from 2018 levels 15% reduction in absolute emissions by 2030 from 2018 levels Our growth, overall, between now and 2030 will be carbon neutral
Slide 39: Using technology to tackle critical climate challenges
Using technology to tackle critical climate challenges - $1 billion over five years For personal use only Tailings: Water management: Work with industry to research and develop new tailings solutions Increase capability to enhance water use and reduce waste Source: Epiroc Solar: Wind: Hybrid & elect
Slide 40: $36bn cash returns since 2016 including $3.9bn in H1 2020
$36bn cash returns since 2016 including $3.9bn in H1 2020 For personal use only $9bn $19bn + $3.7bn Sustaining capex Ordinary and special 2019 final dividend dividends paid to be paid in 2020 43% average EBITDA margin1 $50bn4 operating cash flows $9bn $62bn4 $4bn Development capex of cash Buy-backs
Slide 41: Appendices
For personal use only Appendices 26 February 2020 London
Slide 42: Higher iron ore prices partly offset by lower copper and aluminium prices
Higher iron ore prices partly offset by lower copper and aluminium prices For personal use only Underlying EBITDA 2019 vs 2018 $ million 24,000 4,382 22,000 Iron ore Iron & Titanium Diamonds Copper Aluminium* Other, net 18,136 7,000 20,000 5,719 6,000 18,000 5,000 16,000 4,000 14,000 3,000 12,000 2,
Slide 43: Lower iron ore sales mostly offset by improvement in third party bauxite sales
Lower iron ore sales mostly offset by improvement in third party bauxite sales For personal use only Underlying EBITDA 2019 vs 2018 $ million 316 26,000 529 75 22,819 24,000 4,382 22,000 48 78 ( 303) ( 20) 19 0 ( 407) 20,000 18,136 18,000 ( 74) 16,000 14,000 12,000 10,000 Diamonds Gold Aluminium Cop
Slide 44: Iron Ore: Higher prices partly offset by disruptions
Iron Ore Higher prices partly offset by disruptions For personal use only Underlying EBITDA 2019 vs 2018 $ million 18,000 5,475 247 51 17,078 6 16,098 16,000 ( 73) ( 426) 14,000 ( 560) 11,378 12,000 10,000 8,000 6,000 4,000 2018 Price Exchange rates Energy Inflation Flexed 2018 Volumes and Mix Cash
Slide 45: Aluminium: Lower prices partly offset by improved costs
Aluminium Lower prices partly offset by improved costs and higher bauxite volumes For personal use only Underlying EBITDA 2019 vs 2018 $ million 3,500 3,095 315 2,285 2,500 153 16 316 1,866 ( 212) 1,500 ( 1,288) ( 110) 500 -500 2018 Price Exchange rates Energy Inflation Flexed 2018 Volumes Cash cost
Slide 46: Copper & Diamonds: Solid operational performance offset by lower prices
Copper & Diamonds Solid operational performance offset by lower prices For personal use only Underlying EBITDA 2019 vs 2018 $ million 3,000 2,776 43 22 2,597 73 2,073 ( 196) ( 48) ( 77) 2,000 ( 199) ( 281) ( 40) 1,000 0 2018 Price Exchange Energy Inflation Flexed 2018 Volumes and Cash cost Escondida
Slide 47: Energy & Minerals: Strong operational recovery
Energy & Minerals Strong operational recovery from 2018 disruptions For personal use only Underlying EBITDA 2019 vs 2018 $ million 3,000 72 2,464 29 2,140 327 ( 0) 1,762 281 2,000 ( 75) ( 118) ( 1) 1,000 ( 893) 0 2018 Price Exchange Energy Inflation Flexed 2018 Volumes and Cash costs Coal disposal O
Slide 48: Other movements in underlying EBITDA
Other movements in underlying EBITDA For personal use only Underlying EBITDA impact Energy & Interest, $ million 2018 FX/ price Inflation Volumes Cash costs E&E Non-cash tax, other 2019 Other operations (70) 60 (15) (12) (58) - 15 3 (77) Exploration & Evaluation (net) (231) 13 2 - - (107) - 8 (315)
Slide 49: Group level financial guidance
Group level financial guidance For personal use only FY2020 FY2021 FY2022 CAPEX Total Group ~$7.0bn ~$6.5bn ~$6.5bn Sustaining Capex Group ~$2.5bn ~$2.5bn ~$2.5bn Pilbara Sustaining Capex $1.0-1.5bn $1.0-$1.5bn $1.0-$1.5bn Effective tax rate 30% Returns Total returns of 40 – 60% of underlying earnin
Slide 50: Group level financial guidance: 2020 production
Group level financial guidance For personal use only 2020 production guidance1 2020 costs Iron Ore Shipments 324 – 334mt (100% basis) $14-15/wmt (FOB) C&D C1 unit costs 120-135 c/llb Mined Copper 530 – 570kt Refined Copper 205 – 235kt Diamonds 12 – 14m carats Aluminium Modelling guidance provided fo
Slide 51: Debt maturity profile
Debt maturity profile 31 December 2019 debt maturity profile* For personal use only $ million Reported gross debt increased by $1.3 billion year on year to $14.3 billion at 31 3,500 Millions Dec, mainly attributable to the implementation of IFRS 16 leases 3,000 Average outstanding debt maturity of 2
Slide 52: Pro-forma net debt reconciliation
Pro-forma net debt reconciliation For personal use only 2018 2019 $bn $bn Reported net debt -0.3 3.7 IFRS 16 leases adjustment 1.2 Australian tax top-up in June of following year 0.4 1.0 Australian tax payable on disposals in following year 0.9 Shareholder returns remaining relating to disposals 5.1
Slide 53: Modelling EBITDA
Modelling EBITDA For personal use only Underlying EBITDA sensitivity ($m) impact on FY 2019 underlying 2019 average price / rate EBITDA of 10% price/rate change Copper 273c/lb 350 Aluminium $1,791/t 482 Gold $1,393/oz 54 Iron ore (62% Fe FOB) $85.9/dmt 2,061 A$ 0.70US$ 529 C$ 0.75US$ 199 Oil (Brent)
Slide 54: Modelling aluminium costs
Modelling aluminium costs For personal use only Canadian* smelting unit cash** cost sensitivity ($/t) Impact a $100/t change in each of the input costs below will have on our 2019 Canadian smelting unit cash cost of $1,318/t Alumina (FOB) $191 Green petroleum coke (FOB) $34 Calcined petroleum coke (
Slide 55: Application of the returns policy
Application of the returns policy For personal use only Capital return considerations Comments 1 – Operating cash flow of $14.9 billion 1 Results for 2019 – FCF of $9.2 billion – Underlying earnings up 18% to $10.4 billion – Focused on Oyu Tolgoi Long-term growth prospects – Investing in replacing h
Slide 56: Cash returns paid in 2019
Cash returns paid in 2019 For personal use only 2019 cash returns paid $11.9 billion of cash returns paid to $ billion shareholders in 2019: - $2.9 billion 2018 ordinary final 1.0 11.9 dividend or 180 US cents per share 2.5 - $3.9 billion 2018 special dividend or 243 US cents per share 1.6 - Share b
Slide 57: Our diversified portfolio of products optimises end-to-end value
Our diversified portfolio of products optimises end-to-end value For personal use only Diversified portfolio of products1 Superior value for Pilbara Blend Fines (PBF) We market our high liquidity Pilbara Blend, plus a suite of products to meet the Delivering higher value to our customers and extract
Slide 58: China high-frequency data
China high-frequency data For personal use only Daily coal consumption of major electricity producers Post-CNY property sales remain almost non-existent k tons k sqm 1000 1200 Day 0 = First day of CNY Day 0 = First day of CNY 1000 800 800 600 600 400 400 200 200 0 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14
Slide 59: Group Income Statement and Cash flow statement
Group Income Statement and Cash flow statement For personal use only Rio Tinto Group Oyu Tolgoi and Turquoise Hill(1) Proforma Rio Tinto Group (excluding OT and TRQ)(2) Dec-19 Dec-18 Dec-19 Dec-18 Dec-19 Dec-18 YTD YTD YTD YTD YTD YTD Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actua
Slide 60: Group Balance Sheet
Group Balance Sheet For personal use only Rio Tinto Group Oyu Tolgoi and Turquoise Hill(1) Proforma Rio Tinto Group (excluding OT and TRQ) Dec-19 Dec-18 Dec-19 Dec-18 Dec-19 Dec-18 YTD YTD YTD YTD YTD YTD Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Actual ($m) Non-current assets 70,4