Rio Tinto plc and Rio Tinto Limited — FY 2018 Form 20-F
Reporting period: Year ended 31 December 2018. Although the request references 2018 Q4, this is an annual report, not a standalone fourth-quarter filing. The dual-listed group reports under IFRS as issued by the IASB.
Financial performance and liquidity
| Metric | FY 2018 | Comparison / context |
|---|---|---|
| Consolidated sales revenue | US$40.5bn | Up 1% year over year |
| Net earnings attributable to Rio Tinto owners | US$13.638bn | US$8.762bn in 2017 |
| Underlying earnings | US$8.808bn | US$8.627bn in 2017 |
| Profit for the year | US$13.925bn | Includes US$287m attributable to non-controlling interests |
| Net cash from operating activities | US$11.8bn | Down 15%; higher tax payments and adverse working capital contributed |
| Free cash flow | US$7.0bn | Down 27%; lower operating cash flow and higher capital expenditure |
| Capital expenditure | US$5.4bn | Up 21%, as major projects ramped up |
| Net cash / net debt | US$0.3bn net cash | Improved by US$4.1bn; net gearing was -1% versus 7% in 2017 |
| Cash and short-term cash investments | US$13.3bn | US$11.5bn at year-end 2017 |
| Total financing liabilities | US$13.0bn | Approximately 79% of borrowings carried floating rates; weighted average maturity around 11 years |
The filing text does not provide a clear consolidated margin percentage or absolute underlying EBITDA figure. Net earnings rose by US$4.876bn, while underlying earnings increased by US$181m, indicating that excluded items materially affected reported earnings.
Material changes versus 2017
- Underlying earnings edged higher, supported by increased volumes, prices and currency effects, but partly offset by higher energy and operating costs.
- Net earnings benefited substantially from US$4.0bn of net gains on consolidation and disposals, including the sales of coking coal interests and the Grasberg interest. Other exclusions included US$704m of foreign-exchange and derivative gains and a US$569m gain on Kitimat land and wharf.
- Operating cash flow and free cash flow declined; capital expenditure increased to US$5.4bn.
- Gross debt was reduced through repayments and a bond tender. The group reported US$1.94bn equivalent of gross debt reduction from the 2018 tender and US$13.0bn of total financing liabilities at year end.
- Shareholder distributions increased: US$5.4bn of dividends were paid and US$5.4bn of shares were repurchased.
Outlook, management commentary and risks
- Management expects an effective tax rate on underlying earnings of approximately 30% in 2019 and a first-half 2019 tax payment of A$1.8bn, equivalent to about US$1.3bn.
- The mine-to-market productivity programme had a 2018 exit rate of US$0.4bn; Rio Tinto said it was on track to generate US$1.5bn per year in free cash flow from the programme from 2021.
- Rio Tinto expected its agreed sale of its 68.62% stake in Rössing Uranium to complete in the first half of 2019, subject to conditions including Namibian merger approval. Consideration includes US$6.5m upfront and contingent payments, capped at US$106.5m.
- Management cited trade tensions, possible weakening in China and broader macroeconomic uncertainty. Commodity prices, foreign exchange, sovereign and regulatory actions, joint-venture relationships, project delivery, operational hazards, cyber incidents and talent retention are among the identified risks.
- Climate change is identified as a significant long-term threat and opportunity, including physical, regulatory and market risks. The company also highlighted resource nationalism, scrutiny of foreign investment, water risk and mine closure obligations.
- Operational disruptions included a two-month strike at Iron Ore Company of Canada, labour disruption at the Becancour smelter and a power interruption at Dunkerque. A fatality at the Sorel-Tracy plant led to suspension of production there.
Most important facts for investors to verify
- Review the audited financial statements and notes for the composition and sustainability of the large gap between net earnings and underlying earnings, particularly disposal gains and currency-related items.
- Confirm the drivers of lower operating and free cash flow, and assess whether higher project spending and working-capital movements persist.
- Check the terms, completion status and contingent consideration of the Rössing sale, as well as other portfolio transactions and related liabilities.
- Assess exposure to commodity prices, floating interest rates, China demand, currency movements and major operating or project risks; sensitivity disclosures are estimates and assume other factors remain constant.
- Review contractual commitments, asset retirement obligations, tax uncertainties and provisions. The filing lists US$56.576bn of total contractual obligations, including US$13.927bn of asset retirement obligations.