Rio Tinto - 2018 full year results

Rio Tinto chief executive J-S Jacques said "We have once again announced record cash returns to shareholders
of $13.5 billion on the back of $18 billion of underlying EBITDA and a Return on Capital Employed of 19%. These strong results reflect the efforts of the team to implement our value-over-volume strategy as we continued to strengthen the portfolio and invest in future growth.

"Our world-class portfolio and strong balance sheet will serve us well in all market conditions, and underpin our ability to continue to invest in our business and deliver superior returns to shareholders in the short, medium and long term."

At year end

2018

2017

Change

Net cash generated from operating activities (US$ millions)

11,821

13,884

-15%

Capital expenditure1 (US$ millions)

5,430

4,482

+21%

Free cash flow2 (US$ millions)

6,977

9,540

-27%

Underlying EBITDA3 (US$ millions)

18,136

18,580

-2%

Underlying earnings3 (US$ millions)

8,808

8,627

+2%

Net earnings (US$ millions)

13,638

8,762

+56%

Underlying earnings3 per share (US cents)

512.3

482.8

+6%

Basic earnings per share (US cents)

793.2

490.4

+62%

Ordinary dividend per share (US cents)

307.0

290.0

+6%

Net cash/(debt)4 (US$ millions)

255

(3,845)

 

Net gearing ratio5

-1%

7%

See footnotes on pages 3-4.

·  Sadly, we had three fatalities in 2018, two workplace related, one security incident. All Injury Frequency Rate (AIFR) of 0.44 (2017: 0.42).

·  $6.3 billion of cash returns from operations, comprising the $1.0 billion share buy-back announced in August 2018, and record $5.3 billion full year ordinary dividend (equivalent to 307 US cents per share) - 72% of underlying earnings3, including final dividend of $3.1 billion (equivalent to 180 US cents per share), announced today.

·  $7.2 billion of supplementary cash returns from divestments, comprising a special dividend of $4.0 billion announced today, equivalent to 243 US cents per share, and $3.2 billion of share buy-backs, $1.1 billion of which remains outstanding in Rio Tinto plc shares, to be completed no later than 28 February 2020.

·  This brings total cash returns declared in respect of 2018 to $13.5 billion.

·  Robust underlying EBITDA of $18.1 billion was just 2% below 2017, despite divestments and input cost pressures in aluminium and alumina. $0.4 billion exit rate from our mine-to-market productivity programme6 was impacted by $0.3 billion higher costs from raw materials.

·  $11.8 billion operating cash flow, 15% below 2017, driven primarily by the timing of tax payments related to 2017 earnings and higher inventory balances as a result of the increased price of raw materials.

·  $7.0 billion free cash flow, with lower operating cash flow as described above and increasing investment in capital projects in line with guidance. $5.4 billion of capital expenditure with $2.9 billion invested in high value development projects including AutoHaul™ automated trains, Amrun bauxite and Oyu Tolgoi underground copper/gold mine. Koodaideri and Robe River replacement iron ore mines approved.

·  $8.8 billion underlying earnings, 2% higher due to a strong contribution from Copper & Diamonds, offsetting lower underlying earnings in other product groups.

·  $13.6 billion net earnings driven primarily by gains on disposals and foreign exchange movements.

·  19% Return on Capital Employed (ROCE)7, a rise of one percentage point, as we continue our strategic reshaping of the portfolio.

·  Strong balance sheet as net debt5 fell by $4.1 billion to a net cash5 position of $0.3 billion, including cash and highly liquid investments of $13.3 billion. Cash flows were bolstered by $8.6 billion of pre-tax divestment proceeds, including our remaining Australian coal assets and Grasberg.

Commodity price movements in 2018 increased underlying EBITDA by $277 million compared with 2017. We have included a table of prices and exchange rates on page 48.

The FOB (free on board) Platts index for 62% iron Pilbara fines was 4% lower on average compared with 2017.

Average prices for copper and aluminium were up 6% and 7% respectively, compared with 2017. We also benefited from higher market premiums for aluminium, in particular the mid-west premium in the US which averaged $419 per tonne in 2018 - a 111% rise on 2017's $199 per tonne.

On 1 March, the US government announced a 10% tariff on US imports of aluminium from Canada, which it implemented on 1 June. We do not expect this to have a significant financial impact on our business in the near term.

Weaker Australian dollar

Compared with 2017, on average the US dollar strengthened by 3% against the Australian dollar, stayed flat against the Canadian dollar and weakened by 1% against the South African rand. Currency movements increased underlying EBITDA by $286 million relative to 2017.

Rise in our iron ore, copper and gold volumes

Higher sales volumes increased underlying EBITDA by $863 million compared with 2017, mainly in iron ore and copper/gold. Our Pilbara iron ore shipments rose as we debottlenecked our rail network following full implementation of AutoHaul™ autonomous trains and ramped up production from our new Silvergrass mine. In copper, we benefited from better operating performance at Escondida including the absence of the labour disruption in 2017, as well as higher copper grades at Rio Tinto Kennecott and higher gold grades at Oyu Tolgoi.

Increase in energy prices

Higher energy prices compared to 2017 reduced our underlying EBITDA by $436 million. This was mainly due to the average price of oil rising by roughly 31% in 2018 to $71 per barrel. Our Pacific Aluminium smelters were also affected by higher coal prices and a new power contract.

Continued cost pressures

Our cash operating costs rose by $750 million compared with 2017. The considerable efficiencies we continue to see from our mine-to-market productivity programme were offset by the increasing costs of raw materials - in particular caustic soda, petroleum coke and tar pitch for Aluminium.

Higher expenditure on exploration and evaluation

We spent $43 million more on exploration and evaluation compared with last year. This went to our highest value projects, particularly the Resolution copper project in Arizona.

One-off items

One-off items were $23 million more than in 2017. At Iron Ore Company of Canada, we suspended operations for two months in 2018 ($236 million impact) before reaching a new labour agreement. At Iron & Titanium, production was suspended after a fatality at our Sorel-Tracy plant and labour disruptions at Richards Bay Minerals ($132 million impact). In 2017, our most significant one-off item was the strike action at Escondida, which led to lower volumes and higher unit costs with a $316 million impact.

Non-cash costs/other

The movements in our non-cash costs and other items lowered EBITDA by $317 million compared to 2017. We had $717 million less in underlying EBITDA following the sale of our coal businesses in 2017 and 2018. This was partly offset by the $278 million gain on sale of the Winchester South and Valeria coal development projects and a $167 million revaluation of a royalty receivable arising from the disposal of the Mount Pleasant coal project in 2016. Our restructuring costs were $95 million higher as we continued our reorganisation around four operating and commercial hubs.

Both the 2018 final dividend and the special dividend to be paid to our Rio Tinto Limited shareholders will be fully franked. The board expects Rio Tinto Limited to be in a position to pay fully franked dividends for the foreseeable future.

We will pay the 2018 final dividend and the special dividend on 18 April 2019 to holders of ordinary shares and ADRs on the register at the close of business on 8 March 2019. The ex-dividend date for both the 2018 final dividend and the special dividend for Rio Tinto Limited, Rio Tinto plc and Rio Tinto plc ADR shareholders is 7 March 2019.

Rio Tinto plc shareholders may choose to receive their dividend in Australian dollars, and Rio Tinto Limited shareholders may choose to receive theirs in pounds sterling. Currency conversions will be based on the pound sterling and Australian dollar exchange rates five business days before the dividend payment date. Rio Tinto plc and Rio Tinto Limited shareholders must register their currency elections by 28 March 2019.

We will operate our Dividend Reinvestment Plans for both the 2018 final dividend and the special dividend - see our website (riotinto.com) for details. Rio Tinto plc and Rio Tinto Limited shareholders' election notice for the Dividend Reinvestment Plans must be received by 28 March 2019. Purchases under the Dividend Reinvestment Plan are made on or as soon as practicable after the dividend payment date and at prevailing market prices. There is no discount available.