120 Collins StreetMelbourne 3000 AustraliaT +61 (0) 3 9283 3333F +61 (0) 3 9283 3707 ABN 96 004 458 404
Media release
Rio Tinto results for the year ended 31 December 2012
14 February 2013
Rio Tinto chief executive Sam Walsh said “Today I am setting out how we can build on ourstrengths and improve this great company. Under my leadership, Rio Tinto will have anunrelenting focus on pursuing greater value for shareholders. To do this we need to run thebusiness as owners not managers and my immediate priority is to build more focus, disciplineand accountability throughout the organisation. Demonstrating this commitment, we will deliverour capital reduction and cost savings targets and improve performance across our business.”
•
Reinforcing capital allocation discipline
– Pursuing greater value for shareholders by investing capital only in assets that, afterprudent assessment, offer attractive returns that are well above our cost of capital. – Balancing the use of capital between returns to shareholders and capital expenditure,while aiming to maintain a strong balance sheet with a single A credit rating.
•
Improving performance at existing businesses
– Targeting cumulative cash cost savings of more than $5 billion by the end of 2014,equivalent to an annual run rate of $3 billion by 2014, assuming stable market andoperating conditions. – Reducing capital expenditure on approved and sustaining projects to approximately $13billion in 2013. – Lowering exploration and evaluation spending by $750 million (pre-tax) in 2013 comparedwith 2012.
•
Delivering approved growth projects with two significant milestones in 2013:
– Phase one Pilbara iron ore expansion to 290 Mt/a has been accelerated and is nowscheduled for completion during the third quarter of 2013. Phase two expansion to 360Mt/a to be operational by the first half of 2015. – Oyu Tolgoi copper-gold mine now being commissioned with first commercial productionscheduled by the end of June 2013. Discussions with the Government of Mongoliaregarding the continuing implementation of the Investment Agreement are ongoing.
2012 financial results
2012 underlying financial results reflect record iron ore production and shipments and a secondhalf recovery in copper volumes. This was in the context of lower average market prices in 2012which reduced underlying earnings by $5.3 billion compared with 2011: – Underlying earnings
1
of $9.3 billion. – Net loss of $3.0 billion after impairments of $14.4 billion, primarily relating to aluminiumbusinesses as well as coal assets in Mozambique. – 15 per cent increase in full year dividend to 167 cents per share.Twelve months to 31 December
(All amounts are US$ millions unless otherwise stated)
2012
2011 ChangeUnderlying earnings
1
9,303
15,549 -40%Net (loss) / earnings
1
(2,990)
5,826 -151%Cash flows from operations
16,450
27,388 -40%Capital expenditure
17,418
12,298 +42%Underlying earnings per share – US cents
503.1
808.5 -38%Basic (loss)/earnings per share from continuing operations – UScents
(161.3)
303.5 -153%Ordinary dividends per share – US cents
167.0
145.0 +15%
The financial results are prepared in accordance with IFRS and are unaudited.
1
Underlying earnings is the key financial performanceindicator which management uses internally to assess performance. It is presented here to provide greater understanding of theunderlying business performance of the Group’s operations attributable to the owners of Rio Tinto. Net earnings and underlying earningsrelate to profit attributable to owners of Rio Tinto. Underlying earnings is defined and reconciled to net earnings on page 12.
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Chairman’s comments
Chairman Jan du Plessis said “Our business performed well in 2012, generating strong cashflows and underlying earnings of $9.3 billion. However, we are deeply disappointed by the $14.4billion write-downs that we have taken in 2012, primarily in our aluminium and energybusinesses, which led to the Group recording a net loss of $3.0 billion. Sam Walsh is ideallyplaced to focus on how we address the challenges and opportunities in the business. He has hitthe ground running, and is already making a difference. Sam and the board are completelyaligned on the need to pursue greater value for shareholders and we will be working together toachieve this.“The quality of our assets combined with our positive long term outlook gives us confidence inthe sustainable cash-generating abilities of our business. Today’s increase of 15 per cent in ourfull year dividend reflects that confidence.”
Chief executive’s comments
Chief executive Sam Walsh said “Our long-held strategy of investing in and operating large,long-life, low-cost mines and businesses in the most favourable industry sectors is the rightstrategy to maximise returns for shareholders in a volatile economic environment.“I intend to strengthen the existing management systems, bringing greater rigour to internalchallenge and debate, greater clarity and accountability to decision making, and clearer line ofsight to the critical business issues that exist across the organisation. We are reinforcing ourcapital allocation processes, and will only invest in assets that, after prudent assessment, offerattractive returns that are well above our cost of capital, and which offer a superior return whencompared to returning cash to shareholders
.
We are also targeting significant cash proceedsfrom divestments of non-core businesses in 2013.“In 2012 we generated strong margins in copper, iron ore and minerals, reflecting our industry-leading positions in each sector. But our aluminium and energy businesses faced adeterioration in market conditions coupled with rising costs which we are addressing throughour cost saving and value enhancement programmes.“Looking ahead, we see the positive momentum in the fourth quarter of last year beingsustained into 2013 with Chinese GDP growth returning to above 8 per cent in 2013. We expectmarket uncertainty and price volatility to persist as long as the structural issues in Europe andthe United States remain unresolved.“Throughout 2013 and 2014 we will seek to enhance margins at our existing businesses byunlocking substantial productivity improvements, aggressively reducing costs and bettermanaging our sustaining capital. We are targeting cumulative cash cost savings of more than$5 billion to be achieved over the next two years, equivalent to an annual run rate of $3 billionby 2014, assuming stable market and operating conditions, with significant additional cashsavings in sustaining capital expenditure and exploration and evaluation spend.“We are optimising our future capital allocation by prioritising and investing in only the highestreturning projects. Our major capital projects in copper and iron ore continue in line withexpectations and are poised to deliver additional volumes this year.“This pursuit of greater value for our shareholders is a serious commitment that will inform all ofthe decisions and actions taken across the organisation. These are the right steps to take, and Ibelieve they will help build a stronger, better company.”
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Net earnings and underlying earnings
In order to provide additional insight into the performance of its business, Rio Tinto presentsunderlying earnings. The differences between underlying earnings and net earnings are set outin the following table.
Twelve months ended 31 December
2012US$m2011US$m
Underlying earnings 9,303 15,549
Items excluded from underlying earnings
Impairment charges net of reversals (14,360) (9,290)Gains and losses on consolidation and disposal of interests inbusinesses 827 167Exchange differences and gains/(losses) on derivatives 553 (57)Recognition of deferred tax asset following introduction of MRRT 1,130 -Other (443) (543)
Net (loss)/earnings (2,990) 5,826
Commentary on the Group financial results
The principal factors explaining the movements in underlying and net earnings are set out in thetable below.UnderlyingearningsUS$mNetearnings/ (loss)US$m
2011 15,549 5,826
Prices (5,315)Exchange rates 154Volume increases 634Volume declines (943)General inflation and energy (270)Other cash costs (304)Exploration and evaluation costs (including disposalsof undeveloped properties)80Non cash/interest/tax/other
(282)
Total changes in underlying earnings (6,246) (6,246)Increase in impairment charges (5,070)Movement in gains and losses on consolidation anddisposal of interests in businesses660Movement in exchange differences and gains on derivatives 610Recognition of deferred tax asset following introduction of MRRT 1,130Other movements 100
20129,303 (2,990)
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