Rio Tinto chief executive J-S Jacques said “Today we have announced total cash returns to shareholders of $3 billion. By driving performance, focusing on cash and allocating it with discipline we are delivering superior cash returns to our shareholders.
“These are strong results: operating cash flow was $6.3 billion and we met our $2 billion cash cost reduction target six months early. We are now shifting gear to focus on the untapped value from our productivity programme and continue to strengthen our portfolio to build higher returns for the future. We announced the sale of our thermal coal business in Australia for $2.7 billion and are making good progress on our compelling growth projects – Oyu Tolgoi, Amrun and Silvergrass.”
First half 2017 highlights
– Generated operating cash flow of $6.3 billion, EBITDA1 of $9.0 billion and EBITDA margin2 of 45 per cent.
– Delivered underlying earnings of $3.9 billion and net earnings of $3.3 billion.
– Achieved $2.1 billion of pre-tax sustainable operating cash cost improvements3 in 2016 and 2017 first half, meeting the target six months ahead of schedule.
– Strengthening the portfolio with all three growth projects on track and a $2.7 billion disposal announced in 2017 first half.
– Reduced net debt by $2.0 billion to $7.6 billion, with gross debt4 lowered by $2.5 billion.
– Returning cash to shareholders of $3.0 billion with respect to 2017 first half:
? Declared interim dividend of 110 US cents per share, equivalent to $2.0 billion.
? An increased share buy-back of $1.0 billion in Rio Tinto plc shares by the end of 2017.
? In total represents 75 per cent of 2017 first half underlying earnings.
Six months to 30 June 2017
2016
Change
Net cash generated from operating activities (US$ millions) 6,306 3,240 +95%
Underlying EBITDA1 (US$ millions) 9,042 5,367 +68%
Underlying earnings1 (US$ millions) 3,941 1,563 +152%
Net earnings (US$ millions) 3,305 1,713 +93%
Capital expenditure5 (US$ millions) 1,758 1,318 +33%
Underlying earnings per share (US cents) 219.4 87.0 +152%
Basic earnings per share (US cents) 184.0 95.3 +93%
Ordinary dividend per share (US cents) 110.0 45.0 +144%
At 30 June 2017 At 31 Dec 2016 Change
Net debt6, 9 (US$ millions) 7,571 9,587 -21%
Net debt to EBITDA7, 9 0.4 0.7
Net gearing ratio8, 9 13%
17%
The financial results are prepared in accordance with IFRS and are unaudited. Footnotes are set out on page 3.
Continued focus on allocating cash with discipline
2017 interim capital returns
– Total cash returns to shareholders announced with respect to 2017 first half stand at $3.0 billion.
– Represent 75 per cent of 2017 first half underlying earnings.
$2.0 billion interim dividend
? 2017 interim dividend of 110 US cents per share, equivalent to $2.0 billion, to be paid on 21 September 2017.
$1.0 billion additional share buy-back
? Increased share buy-back by $1.0 billion in Rio Tinto plc shares.
? In addition to the $0.2 billion remaining from the $0.5 billion share buy-back programme announced in February 2017.
? The total share buy-backs will be completed by the end of 2017.
Revenues and earnings
– Consolidated sales revenues of $19.3 billion, $3.8 billion higher than 2016 first half, primarily due to higher average commodity prices.
– EBITDA margin2 of 45 per cent in 2017 first half, compared with 33 per cent in 2016 first half.
– Underlying earnings of $3.9 billion, 152 per cent higher than 2016 first half, driven by the $2.7 billion (post-tax) impact of higher prices.
– Effective tax rate of 31 per cent compared with 25 per cent in 2016 first half, reflecting the impact of a non-cash deferred tax asset write-down relating to Grasberg.
– Net earnings of $3.3 billion were $0.6 billion lower than underlying earnings, primarily reflecting non-cash exchange losses of $0.4 billion and net impairment charges of $0.2 billion.
Cash flow and balance sheet
First half 2017 US$m First half 2016 US$m
Net cash generated from operating activities 6,306 3,240
Capital expenditure (1,758) (1,318)
Other investing activities* 94 114
Free cash flow 4,642 2,036
Disposals 135 556
Dividends paid to equity shareholders (2,248) (1,916)
Share buy-back (252) -
Other (261) 203
Reduction in net debt 2,016 879
* Mainly sales of property, plant and equipment
– Generated net cash from operating activities of $6.3 billion, 95 per cent higher than 2016 first half, primarily due to higher prices partly offset by an increase in taxes paid driven by higher profits.
– Capital expenditure of $1.8 billion, of which $0.7 billion was sustaining capex.
– Generated free cash flow10 of $4.6 billion.
– Continued shaping of the portfolio with the sale of the Coal & Allied thermal coal assets for $2.69 billion announced in 2017 first half, of which $2.45 billion is payable in cash on completion expected in the third quarter of 2017. Second tranche from Lochaber sale of $0.2 billion received in 2017 first half.
– Paid the 2016 final dividend of $2.2 billion.
– Ongoing share buy-back in Rio Tinto plc shares.
? Bought back $0.3 billion of Rio Tinto plc shares by 1 August 2017.
– Further strengthened the balance sheet with a 21 per cent reduction in net debt to $7.6 billion and net gearing ratio of 13 per cent. Successfully completed a $2.5 billion bond tender and redemption exercise which drove the reduction in gross debt.
Growth projects
– Silvergrass iron ore development in the Pilbara (approved project spend of $338 million) maintains the Pilbara blend, lowers unit costs and adds 10 million tonnes of annual capacity. Full commissioning is on target for the fourth quarter of 2017.
– Oyu Tolgoi underground copper mine development in Mongolia (approved project spend of $5.3 billion): first tonnes expected in 2020, with average annual production of 560 thousand tonnes between 2025 and 203011.
– Amrun bauxite project in Queensland (approved project spend of $1.9 billion) remains on track, with production and shipping expected to commence in the first half of 2019, increasing bauxite exports by around 10 Mt/a12.
Guidance
– Additional cumulative free cash flow of $5.0 billion from 2017 to the end of 2021 from productivity improvements.
– Capital expenditure expected to remain at around $5.0 billion in 2017 and around $5.5 billion in each of 2018 and 2019. Each year includes approximately $2.0 to 2.5 billion of sustaining capex.
– Effective tax rate on underlying earnings of approximately 30 per cent expected in 2017.
– Production guidance is unchanged from the Second Quarter Operations Review.
Underlying EBITDA and earnings are key financial performance indicators which management use internally to assess performance. They are presented here to provide greater understanding of the underlying business performance of the Group’s operations. Net and underlying earnings relate to profit attributable to the owners of Rio Tinto. Underlying EBITDA and earnings are defined on page 12. Underlying earnings is reconciled to net earnings on page 62.
2 EBITDA margin is defined as Group underlying EBITDA divided by Product Group total revenues as per the Financial Information by Business Unit on page 10 where it is reconciled to profit on ordinary activities before finance items and taxation and consolidated sales revenue. This financial metric is used by management internally to assess performance, and therefore is considered relevant to users of the accounts.
3 Operating cash cost improvements represent the difference between the current and prior year full cash cost of sales per unit based on the prior year volume sold.
4 Gross debt is defined as Adjusted total borrowings on page 43.
5 Capital expenditure is presented gross, before taking into account any cash inflows from disposals of property, plant and equipment.
6 Net debt is defined and reconciled to the balance sheet on page 43.
7 Net debt to EBITDA is defined as the period end net debt divided by the previous 12 months’ underlying EBITDA.
8 Net gearing ratio is defined as net debt divided by the sum of net debt and total equity at each period end.
9 These financial performance indicators are those which management use internally to assess performance, and therefore are considered relevant to users of the accounts.
10 Free cash flow is defined as Net cash generated from operating activities less Purchases of property, plant and equipment (PP&E) plus Sales of PP&E. It is a key financial indicator which management uses internally to assess performance and is therefore considered relevant to users of the accounts.
11 This production target was disclosed in a release to the market on 6 May 2016. All material assumptions underpinning that target continue to apply and have not materially changed.
12 This increased production was disclosed in a release to the market on 27 November 2015. All material assumptions underpinning that increase continue to apply and have not materially changed.
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