RIO TINTO PLC annual report, Q4 FY2019

Vollständiges Dokument

Rio Tinto plc and Rio Tinto Limited — FY 2019 Form 20-F

Reporting period: Fiscal year ended 31 December 2019; filed 28 February 2020. This is an annual report, not a standalone 2019 fourth-quarter filing. Figures are in US dollars unless otherwise noted. The companies report under IFRS as issued by the IASB.

Business context and financial performance

Rio Tinto is a global mining group with principal businesses in iron ore, aluminium, copper and diamonds, and energy and minerals. The filing incorporates substantial material from its 2019 annual report; the supplied text does not reproduce every financial-statement line item.

  • Revenue: Consolidated sales revenue was $43.2 billion, up 7% from 2018. Gross sales revenue, including equity-accounted units on a proportionate basis, rose to $45.4 billion from $42.8 billion.
  • Profit: Net earnings attributable to Rio Tinto owners were $8.010 billion, down from $13.638 billion. Profit for the year was $6.972 billion, compared with $13.925 billion in 2018. Underlying earnings increased to $10.373 billion from $8.808 billion.
  • Cash flow and investment: Net cash from operating activities was $14.912 billion, up 26%. Capital expenditure was $5.488 billion. Free cash flow was $9.158 billion, up 31%; this measure includes $315 million of lease principal payments following adoption of IFRS 16.
  • Shareholder returns: Dividends paid or payable for 2019 totaled 443 US cents per share, including a 61-cent special dividend. Rio Tinto also repurchased $1.6 billion of shares. Total dividends paid were $10.3 billion.
  • Debt and liquidity: Net debt was $3.651 billion at year-end, versus net cash of $255 million at the end of 2018; net gearing was 7%, compared with negative 1%. Cash and cash equivalents plus other short-term cash investments were $10.6 billion, down from $13.3 billion. Financing liabilities totaled $14.3 billion, including $1.3 billion of lease liabilities; weighted average maturity was about 10 years. Approximately 76% of borrowings were at floating rates.
  • Margins: The supplied filing text does not provide a clear consolidated operating-margin or net-margin figure.

Material changes versus 2018

  • Higher iron ore prices were the main earnings and cash-flow tailwind: the average Platts 62% iron fines index was 39% higher, and iron ore gross sales revenue rose 29% to $24.1 billion. Pilbara shipments declined 3% to 327 million tonnes.
  • Underlying EBITDA benefited by $4.382 billion from commodity prices and $529 million from exchange rates. These gains were partly offset by $523 million of higher operating cash costs and the absence of $1.246 billion of underlying EBITDA from assets divested in 2018.
  • Aluminium gross sales revenue fell 15% to $10.3 billion, reflecting lower alumina and aluminium prices. Copper and Diamonds revenue declined 10% to $5.8 billion, amid lower realized copper prices and grades. Energy and Minerals revenue fell 6% to $5.2 billion, but was 15% higher excluding the 2018 divested coal contribution.
  • Net earnings fell despite higher underlying earnings, principally because 2018 included $4.0 billion of post-tax disposal and consolidation gains, while 2019 recorded $1.658 billion of impairment charges and a $291 million net loss on consolidation and disposals.
  • 2019 impairment charges included post-tax charges of about $0.8 billion each for Oyu Tolgoi and the Yarwun alumina refinery. At Oyu Tolgoi, the filing cites delayed forecast first production and higher development capital; at Yarwun, the charge followed a reassessment of cash-generating units after the Amrun expansion.
  • Net debt increased by $3.9 billion, reflecting dividends, share buybacks and a $1.2 billion non-cash increase associated with IFRS 16, partly offset by free cash flow.

Outlook, management commentary, risks and unusual items

  • Management expected an effective tax rate on underlying earnings of approximately 30% in 2020; the 2019 rate, excluding equity-accounted units, was 30%.
  • The filing states that contractual commitments and liquidity requirements were expected to be met from internal cash flows and, if necessary, existing facilities. It does not provide a clear consolidated production or earnings forecast in the supplied text.
  • Management identified commodity-price volatility, China’s growth and demand, exchange rates, geopolitical and trade tensions, project execution, liquidity, joint-venture partner performance, exploration outcomes, operational safety, environmental and climate risks, regulatory changes, and community and sovereign risks as material exposures.
  • The company said it was monitoring potential short- and medium-term COVID-19 impacts, including supply chains, workforce mobility, markets, trade flows and financial-market resilience. The filing was signed in February 2020, so subsequent effects are not quantified here.
  • Other significant items included a $199 million charge at Escondida for cancellation of coal power contracts, operational impacts at Richards Bay Minerals and aluminium smelters, and a $0.2 billion after-tax loss related to legacy-operation obligations. Adoption of IFRS 16 increased underlying EBITDA by approximately $320 million through lease-expense reclassification.
  • Audit attention focused on valuation assumptions for Oyu Tolgoi and Yarwun impairments, Rio Tinto Kennecott closure and environmental provisions, and uncertain tax positions associated with transfer pricing involving the Singapore commercial centre. Auditors expressed unmodified opinions on the financial statements and internal control over financial reporting.

Important facts for investors to verify

  • Review the complete audited statements and notes for segment results, working capital, cash balances, debt maturities, covenants, and the definitions and reconciliations of underlying earnings, underlying EBITDA and free cash flow.
  • Assess the assumptions and project schedule behind Oyu Tolgoi’s impairment and development plan, and the outlook for Yarwun and the aluminium business.
  • Check the sensitivity of cash generation to iron ore prices, commodity prices, foreign exchange rates and floating interest rates; the filing estimates that a 10% iron ore price change would affect underlying EBITDA by about $2.061 billion.
  • Examine the full scale and timing of closure, restoration, pension, purchase and other contractual obligations. The filing reports total contractual commitments of $63.981 billion, including $16.066 billion for asset-retirement obligations and $16.919 billion for purchase obligations.
  • Verify subsequent developments relating to COVID-19, project execution and the company’s announced auditor transition to KPMG, which was subject to shareholder approval in 2020.