Slide 1: 2016 full year results
2016 full year results 8 February 2017 London
Slide 2: Cautionary statements
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 a
Slide 3: J-S Jacques, Chief executive
J-S Jacques Chief executive
Slide 4: Our value proposition
Our value proposition Capital discipline and Team and performance Long-term strategy Cash focus shareholder returns culture World-class assets Value over volume Strong balance sheet Safety first Delivering >2% CAGR1 CuEq growth $2 billion cost savings over 2016/17 40-60% returns through the cycle As
Slide 5: Delivering on our promises
Delivering on our promises Strong operating cash flow of $8.5 billion Portfolio optimisation with divestments announced of $1.3 billion Investing in our three major growth projects Balance sheet strength with net debt reduced to $9.6 billion Shareholder returns of $3.6 billion 5 | © Rio Ti
Slide 6: Strong results delivered in 2016
Strong results delivered in 2016 Robust financial performance Capital allocation Positioning for the long-term Operating cashflow of $8.5 billion Full year 2016 dividend of $3.1 billion Oyu Tolgoi underground approved in May Underlying earnings of $5.1 billion Share buy-back of $0.5 billion in 2017
Slide 7: Safety comes first
Safety comes first A history of continual improvement in safety Fatality at Paraburdoo in June AIFR per 200,000 hours worked Continued focus on Fatality Prevention, Illness and 1.4 Injury Reduction and Catastrophic Event Prevention 1.2 Critical Risk Management (CRM) Programme – More than 1.3 million
Slide 8: World-class assets delivering value
World-class assets delivering value Iron Ore Aluminium Copper & Diamonds Energy & Minerals 63% 28% 35% 30% Margins Pilbara operations FOB Integrated operations Operating EBITDA Operating FOB EBITDA EBITDA margin EBITDA margin margin margin Cash flows from operations Cash flows from operations Cash f
Slide 9: Chris Lynch, Chief financial officer
Chris Lynch Chief financial officer
Slide 10: Prices recovered in 2016 but were lower in aggregate than 2015
Prices recovered in 2016 but were lower in aggregate than 2015 10 | © Rio Tinto 2017
Slide 11: Increased underlying earnings driven by cash cost reductions
Increased underlying earnings driven by cash cost reductions Underlying earnings 2015 vs 2016 $ million (post tax) 6,000 97 1,124 5,100 4,540 (136) 49 25 3,996 19 4,000 (460) (158) Total cost reductions of $1.2bn post-tax or $1.6bn pre-tax 2,000 0 2015 Price Exchange Energy Inflation Flexed 2015 Vol
Slide 12: $1.6 billion of cost reductions achieved in 2016
$1.6 billion of cost reductions achieved in 2016 2016 pre-tax operating cash cost improvements $7.8 billion cost savings achieved since 2012 ($m) 185 1,601 Cost performance helped deliver a 2016 EBITDA 342 margin of 38% (34% in FY 2015) Cost culture across all product groups 278 $2 billion cost savi
Slide 13: Net earnings
Net earnings US$m 2016 underlying earnings 5,100 Impairments/Onerous contracts (512) Net gains on disposals 382 Exchange gains/losses on 536 debt and derivatives Restructuring costs and (177) global headcount reductions Tax provision (380) Closure provisions (282) Other (50) 2016 net earnings 4,617
Slide 14: Continued focus on trade working capital
Continued focus on trade working capital Trade working capital days reduced from 35 to 22 in 2016 Trade working capital balances #days (12 month rolling average excluding financing) $ million 3000 39 2500 270 2,424 610 34 2000 1,875 17 1500 (227) (121) 29 1000 24 500 0 19 Opening FX Change in Change
Slide 15: Our capital allocation framework
Our capital allocation framework Essential 1 sustaining capex Further cash Compelling Ordinary returns to 2 dividends shareholders growth Iterative 3 cycle of Debt management 15 | © Rio Tinto 2017
Slide 16: Disciplined allocation of strong cash flow
Disciplined allocation of strong cash flow Cash flow 2016 Disciplined allocation of capital ($ million) ($ billion) 10,000 761 9,580 354 8,465 1.7 8,000 Total cash from asset 3.9* 6,000 disposals of $1.1bn 1.3 4,000 2,000 2.7 0 Net cash generated Sales of PP&E Disposals Cash available for Sustaining
Slide 17: Sustaining capex and compelling growth
Sustaining capex and compelling growth Capital expenditure profile 2016 capital reduction due to project optimisation, cost $ billion improvements and timing ~5.5 ~5.5 H2 2016 spend of $1.7 billion as projects progress ~5.0 Three major projects approved and on track 3.0 Brownfields Pilbara mines rep
Slide 18: Investing in growth projects of >15% IRR
Investing in growth projects of >15% IRR Silvergrass – delivering high-grade low, phosphorus iron ore, with system benefits, for the Pilbara Blend On track for H2 2017, ~20Mtpa capacity Amrun – high-quality greenfield bauxite project. Advancing to schedule, 22.8 Mt/a1 capacity, H1 2019 Oyu Tolgoi un
Slide 19: Strengthening our balance sheet
Strengthening our balance sheet Net debt and gearing ratio1 Net debt reduction of $4.2 billion in 2016 ($bn) Gearing below 20% – Provides stable foundation during uncertain 22.1 economic outlook 18.1 – Supports shareholder returns through the cycle 13.8 28% 12.5 – Enables counter-cyclical investment
Slide 20: Near-term maturities greatly reduced
Near-term maturities greatly reduced $(m) 31 Dec 2015 debt maturity profile * Gross debt reduced by $5 billion in 2016 3,000 2,000 $9.0 billion of bonds purchased or repaid with cash 1,000 in 2016 0 2034-2039 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2
Slide 21: Continuing to shape our portfolio
Continuing to shape our portfolio $7.7 billion1 disposals announced since 2013 Value delivered through divestments ($bn) January announcement of Coal & Allied divestment for up to $2.45 billion Up to 2.45 Proceeds expected in 2017: – Lochaber second tranche of $0.2 billion in H1 3,208 1.3 – Coal & A
Slide 22: Application of the new returns policy
Application of the new returns policy Capital return considerations Comments Status Underlying earnings up 12% to $5.1bn Results for 2016 Net debt reduced to $9.6bn. Long term growth prospects Focused on Silvergrass, Amrun and Oyu Tolgoi. Balance sheet strength Net debt <$10bn Strong earnings/
Slide 23: Delivering superior returns for shareholders
Delivering superior returns for shareholders Cash returns to shareholders ($bn)* Final 2016 dividend declared of 125 US cents per share, delivering full year dividend of 170 US cents 0.5 per share Share buy-back totalling $0.5 billion to be undertaken in 2017 in Rio Tinto plc shares 2.3 3.6 Total 20
Slide 24: J-S Jacques, Chief executive
J-S Jacques Chief executive
Slide 25: Resilience in uncertain times
Resilience in uncertain times Government and community Chinese economic reform engagement Political transition 25 | © Rio Tinto 2017
Slide 26: Commodity recovery led by renewed activity in China
Commodity recovery led by renewed activity in China Housing inventories Tier 1 Construction and downstream industrial activity has 70 60 Tier 2 picked up, improving profitability Tier 3, 4, 5 50 Months of supply 40 Housing inventories have normalised, in particular 30 tier 3 and below 17.7 20 7.8 10
Slide 27: 2017 steel and iron ore outlook
2017 steel and iron ore outlook Mt China crude steel production Steel production curtailment leads to a more sustainable (Mt, annualised) 1000 steel industry 900 – Reduction in steel mill capacity not directly linked to 800 steel output 700 – Supports demand for high quality iron ore 600 1Q15 2Q15 3
Slide 28: Strategy will deliver value through the cycle
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 28 | © Rio Tinto 2017
Slide 29: We aim to deliver $5 billion of free cash flow in productivity improvements over five years
We aim to deliver $5 billion of free cash flow in productivity improvements over five years Value Chain Exploration Major projects Mining Asset Processing Infrastructure Marketing management Broadening our cost saving programme to include productivity Opportunity to Opportunity to Opportunity to imp
Slide 30: Technology supporting our productivity programme
Technology supporting our productivity programme Truck utilisation smartphone app 30 | © Rio Tinto 2017
Slide 31: Prioritising people and partners
Prioritising people and partners Mobile Safety first talent pool Technical & Highly-valued partners commercial excellence Fully-engaged Sustainable local employees investment 31 | © Rio Tinto 2017
Slide 32: Delivering on our promises
Delivering on our promises Strong operating cash flow of $8.5 billion Portfolio optimisation with divestments announced of $1.3 billion Investing in our three major growth projects Balance sheet strength with net debt reduced to $9.6 billion Shareholder returns of $3.6 billion 32 | © Rio T
Slide 33: Appendix
Appendix
Slide 34: Price, cash cost reductions and higher volumes driving increased H2 earnings
Price, cash cost reductions and higher volumes driving increased H2 earnings Underlying earnings H1 2016 vs H2 2016 $ million (post tax) 4,000 228 3,537 403 12 3,000 1,331 2,805 89 (52) (18) (19) 2,000 1,563 1,000 0 H1 2016 Price Exchange rates Energy Inflation H1 2016 flexed Volumes Cash cost Explo
Slide 35: Prices were mixed in 2016…
Prices were mixed in 2016… Underlying earnings 2015 vs 2016 $ million (post tax) 6,000 Iron ore Met. coal Gold Molybdenum Diamonds Other, net Copper Minerals Aluminium* 4,540 185 121 4,000 32 (460) (12) (25) (36) (105) (116) 2,000 (504) 0 2015 Price underlying earnings * Aluminium includes a reducti
Slide 36: Lower copper and gold sales offset by strong sales in iron ore and aluminium
Lower copper and gold sales offset by strong sales in iron ore and aluminium Underlying earnings 2015 vs 2016 $ million (post tax) 6,000 148 4,540 91 49 25 3,996 19 33 31 4,000 14 (460) (158) (60) (83) 2,000 (155) 0 2015 Price Exchange Energy Inflation Flexed Volumes underlying rates 2015 & Mix earn
Slide 37: Iron Ore: our low-cost advantage has been sustained over many years
Iron Ore: our low-cost advantage has been sustained over many years Pilbara cash unit cost 2016 cash unit cost of $13.7/t (8% lower than $ per tonne $14.9/t in 2015) Focus remains on maintaining consistently 20.4 attractive FOB EBITDA margins (63% in 2016) 18.7 Average realised FOB price of $49.3 pe
Slide 38: Iron Ore: increased volumes, prices and cost reductions
Iron Ore: increased volumes, prices and cost reductions Underlying earnings 2015 vs 2016 $ million (post tax) 6,000 187 4,611 230 3,940 139 59 4,047 147 4,000 (37) (54) 2,000 0 2015 underlying Price Exchange rates Energy Inflation Flexed Volumes Cash cost Tax & other 2016 underlying earnings 2015 re
Slide 39: Aluminium: volumes and cost improvements almost completely offset lower prices
Aluminium: volumes and cost improvements almost completely offset lower prices Underlying earnings 2015 vs 2016 $ million (post tax) 1,500 1,118 351 4 947 1,000 (18) 91 519 500 (507) (3) (45) (44) 0 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration & Tax & other 2016 underlyi
Slide 40: Copper & Diamonds: cost savings partly offset lower volumes and prices
Copper & Diamonds: cost savings partly offset lower volumes and prices Underlying earnings 2015 vs 2016 $ million (post tax) 500 370 249 250 (79) 14 (16) (4) (22) 203 0 (297) (187) (18) -250 2015 Price Exchange Energy Inflation Flexed Volumes Cash cost Exploration & Tax & other 2016 underlying rates
Slide 41: Energy & Minerals: cost improvements, favourable exchange rates and higher volumes driving earnings
Energy & Minerals: cost improvements, favourable exchange rates and higher volumes driving earnings Underlying earnings 2015 vs 2016 $ million (post tax) 700 19 17 610 600 250 500 400 56 105 24 268 300 175 2 (38) 200 100 0 2015 Price Exchange Energy Inflation Flexed 2015 Volumes Cash cost Exploratio
Slide 42: Other movements in underlying earnings
Other movements in underlying earnings Underlying earnings impact Energy & Interest, tax & $ million 2015 FX/ price Inflation Volumes Cash Costs Epl'n eval'n Non Cash other 2016 Other operations (88) (15) (9) 22 32 - 6 (34) (86) Exploration & Evaluation (net) (211) - - - - 64 - - (147) Interest (389
Slide 43: Modelling earnings
Modelling earnings 2016 ($m) impact on FY 2016 underlying earnings of average price/ Earnings sensitivity 10% price/rate change rate Copper 221c/lb 238 Aluminium $1,605/t 469 Gold $1,250/oz 36 Iron ore (62% Fe FOB) $53.6/dmt 879 Coking coal (benchmark) $114/t 49 Thermal coal (average spot) $66/t 81