REG - Rio Tinto - Rio Tinto 2016 full year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 3
08/02/2017 07:05
- Part 3: For the preceding part double click ID:nRSH3110Wb
Rio Tinto plc
6 St James's SquareLondon SW1Y 4ADUnited Kingdom T +44 20 7781 2000
Registered in England No. 719885
Rio Tinto Limited
120 Collins StreetMelbourne 3000Australia T +61 3 9283 3333Registered in
AustraliaABN 96 004 458 404
Group income statement
Years ended 31 December
2016US$m 2015US$m
Consolidated operations
Consolidated sales revenue 33,781 34,829
Net operating costs (excluding items shown separately) (26,799) (27,919)
Impairment charges (a) (249) (2,791)
Net gains on disposal of interests in businesses (b) 515 64
Exploration and evaluation costs (497) (576)
Profit relating to interests in undeveloped projects 44 8
Operating profit 6,795 3,615
Share of profit after tax of equity accounted units 321 361
Profit before finance items and taxation 7,116 3,976
Finance items
Net exchange gains/(losses) on external debt and intragroup balances 611 (3,538)
Net losses on derivatives not qualifying for hedge accounting (24) (88)
Finance income 89 52
Finance costs (c) (1,111) (750)
Amortisation of discount (338) (378)
(773) (4,702)
Profit/(loss) before taxation 6,343 (726)
Taxation (1,567) (993)
Profit/(loss) after tax for the year 4,776 (1,719)
- attributable to owners of Rio Tinto 4,617 (866)
- attributable to non-controlling interests 159 (853)
Basic earnings/(loss) per share (d) 256.9c (47.5)c
Diluted earnings/(loss) per share (d) 255.3c (47.5)c
Status of financial information
This preliminary announcement does not constitute the Group's full financial
statements for 2016. This report is based on accounts which are in the process
of being audited and will be approved by the Board and subsequently filed with
the Registrar of Companies in the United Kingdom and the Australian Securities
and Investments Commission. Accordingly, the financial information for 2016 is
unaudited and is not statutory accounts within the meaning of Section 434 of
the United Kingdom Companies Act 2006.
Financial information for the year to 31 December 2015 has been extracted from
the full financial statements for that year prepared under the historical cost
convention, as modified by the revaluation of certain derivative contracts and
financial assets, the impact of fair value hedge accounting on the hedged
items and the accounting for post-retirement assets and obligations, as filed
with the Registrar of Companies.
The Auditors' report on the full financial statements for the year to 31
December 2015 was unqualified and did not contain a statement under section
498 (2) (regarding adequacy of accounting records and returns), or under
section 498 (3) (regarding provision of necessary information and
explanations) of the United Kingdom Companies Act 2006.
Notes to the Group income statement
(a) Impairment charges during the year ended 31 December 2016 primarily
relate to the Argyle diamond mine in Western Australia. An impairment trigger
assessment at the Argyle cash-generating unit resulted in the identification
of impairment indicators as a result of lower production volumes compared with
forecast and lower prices achieved for bulk diamonds. The reduction in the
recoverable amount resulted in a pre-tax impairment charge of US$241 million
to property, plant and equipment and intangible assets.
Impairment charges during the year ended 31 December 2015 primarily related to
the Simandou project in Guinea. Market conditions and uncertainty over
infrastructure ownership and funding affected the Group's view of the carrying
value of the project and a pre-tax impairment charge of US$2.0 billion was
recorded.
Other impairment charges in 2015 were in certain uranium, aluminium, copper
and coal businesses.
(b) Net gains on disposal of interests in businesses in 2016 related
mainly to the sale of Rio Tinto's 40 per cent interest in the Bengalla Joint
venture on 1 March 2016 and the sale of the Lochaber assets in Scotland on 23
November 2016. This was partially offset by a loss on disposal of the 100 per
cent interest in Carbone Savoie on 31 March 2016.
In 2015, the balance related mainly to the reduction in shareholding of
SouthGobi Resources Ltd, the sale of the Group's interest in Murowa Diamonds
and Sengwa Colliery on 17 June 2015 and the Aluminium product group
divestments of ECL on 9 July 2015 and Alesa on 24 November 2015. Refer to
'Acquisitions and disposals 'on page 42.
(c) Finance costs in the income statement are net of amounts capitalised
of US$111 million (2015: US$254 million).
(d) For the purposes of calculating basic earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the year was 1,797.3 million (2015: 1,824.7 million), being
the weighted average number of Rio Tinto plc shares outstanding of 1,373.7
million (2015: 1,398.1 million) and the weighted average number of Rio Tinto
Limited shares of 423.6 million (2015: 426.6 million). In 2016, no Rio Tinto
Limited shares were held by Rio Tinto plc (2015: nil). The profit and loss
figures used in the calculation of basic and diluted earnings per share are
based on the profits and losses for the year attributable to owners of Rio
Tinto.
For the purposes of calculating diluted earnings per share, the effect of
dilutive securities is added to the weighted average number of shares. This
effect is calculated using the treasury stock method. In accordance with IAS
33 'Earnings per share', the anti-dilutive effects of potential ordinary
shares have not been included when calculating diluted loss per share for the
year ended 31 December 2015.
Group statement of comprehensive income
Years ended 31 December
2016US$m 2015US$m
Profit/(loss) after tax for the year 4,776 (1,719)
Other comprehensive income/(loss):
Items that will not be reclassified to profit or loss:
Actuarial (losses)/gains on post-retirement benefit plans (90) 619
Tax relating to these components of other comprehensive income 29 (175)
(61) 444
Items that have been/may be subsequently reclassified to profit or loss:
Currency translation adjustment (a) (157) (2,395)
Currency translation on companies disposed of, transferred to the income statement 99 (2)
Fair value movements:
- Cash flow hedge losses (88) (41)
- Cash flow hedge losses transferred to the income statement 116 32
- Gains/(losses) on revaluation of available for sale securities 13 (19)
- Losses on revaluation of available for sale securities transferred to the income statement - 11
Tax relating to these components of other comprehensive income 4 (3)
Share of other comprehensive income/(loss) of equity accounted units, net of tax 11 (57)
Other comprehensive loss for the year, net of tax (63) (2,030)
Total comprehensive income/(loss) for the year 4,713 (3,749)
- attributable to owners of Rio Tinto 4,504 (2,443)
- attributable to non-controlling interests 209 (1,306)
(a) Excludes a currency translation charge of US$35 million (31 December
2015: US$503 million) arising on Rio Tinto Limited's share capital for the
year ended 31 December 2016, which is recognised in the Group statement of
changes in equity. Refer to Group statement of changes in equity on page 38.
Group cash flow statement
Years ended 31 December
2016US$m 2015 US$m
Cash flows from consolidated operations(a) 11,368 12,102
Dividends from equity accounted units 253 210
Cash flows from operations 11,621 12,312
Net interest paid (b) (1,294) (827)
Dividends paid to holders of non-controlling interests in subsidiaries (341) (310)
Tax paid (1,521) (1,792)
Net cash generated from operating activities 8,465 9,383
Cash flows from investing activities
Purchases of property, plant and equipment and intangible assets (c) (3,012) (4,685)
Disposals of subsidiaries, joint ventures and associates (d) 761 (38)
Purchases of financial assets (e) (789) (49)
Sales of financial assets (e) 582 65
Sales of property, plant and equipment and intangible assets (f) 354 97
Net funding of equity accounted units (12) 11
Acquisitions of subsidiaries, joint ventures and associates - (3)
Other investing cash flows 12 2
Net cash used in investing activities (2,104) (4,600)
Cash flows before financing activities 6,361 4,783
Cash flows from financing activities
Equity dividends paid to owners of Rio Tinto (2,725) (4,076)
Proceeds from additional borrowings 4,413 1,837
Repayment of borrowings (9,361) (3,518)
Proceeds from issue of equity to non-controlling interests 101 103
Own shares purchased from owners of Rio Tinto - (2,028)
Purchase of non-controlling interests (23) -
Other financing cash flows (b) 104 12
Net cash flow used in financing activities (7,491) (7,670)
Effects of exchange rates on cash and cash equivalents (35) (159)
Net decrease in cash and cash equivalents (1,165) (3,046)
Opening cash and cash equivalents less overdrafts 9,354 12,400
Closing cash and cash equivalents less overdrafts (g) 8,189 9,354
(a) Cash flows from consolidated operations
Profit/(loss) after tax for the year 4,776 (1,719)
Adjustments for:
Taxation 1,567 993
Finance items 773 4,702
Share of profit after tax of equity accounted units (321) (361)
Net gains on disposal and consolidation of interests in businesses (515) (64)
Impairment charges net of reversals 249 2,791
Depreciation and amortisation 4,794 4,645
Provisions (including exchange differences on provisions) 1,417 726
Utilisation of provisions (627) (585)
Utilisation of provision for post-retirement benefits (370) (230)
Change in inventories 292 526
Change in trade and other receivables (794) 1,404
Change in trade and other payables 229 (431)
Other items (h) (102) (295)
11,368 12,102
Group cash flow statement (continued)
(b) During the year Rio Tinto completed three bond purchase programmes
totalling $7.5 billion
(nominal values). These transactions resulted in net interest paid of US$493
million, which represents the payment of the premiums and the accelerated
interest associated with these bond redemptions. In addition, US$88 million
was received relating to the close out of interest rate swaps and was
recognised in other financing cash flows.
There was no early redemption of bonds in the year ended 31 December 2015.
(c) Capital expenditure includes US$232 million (31 December 2015: US$346
million) capitalised in accordance with IFRIC 20 'Stripping costs in the
production phase of a surface mine'; a significant proportion of stripping
costs capitalised relate to the Group's Copper operations.
(d) Disposals of subsidiaries, joint ventures and associates in 2016 related
primarily to Rio Tinto's disposal of its 40 per cent interest in the Bengalla
Joint Venture for US$599 million (net of working capital adjustments,
transaction costs and cash disposed of in the Joint Venture) and US$224
million related to the disposal of its Lochaber assets for total consideration
of US$410 million (before finalisation of closing adjustments and transaction
costs). The remaining balance of $186 million related to the Lochaber disposal
is due in the first half of 2017.
Disposals in 2015 related to the sale by Turquoise Hill Resources Ltd of
shares in SouthGobi Resources Ltd, disposal by Rio Tinto of ECL, Alesa and its
77.8 per cent interest in Murowa Diamonds and 50 per cent interest in Sengwa
Colliery Ltd.
Disposals in the cash flow statement are presented net of cash on disposal and
after adjusting for working capital and other items as specified under the
relevant sales agreements.
(e) In July 2016, the Group engaged a third party fund manager to invest in a
separately managed portfolio of fixed income instruments with the objective of
diversifying investment holdings whilst maintaining near-term liquidity. These
investments are classified as assets held for trading in the balance sheet and
as such, purchases and sales of eligible securities will be reported on a
gross cash flow basis. The net investment cash flows for 2016 were an outflow
of US$250 million.
(f) Sales of property, plant and equipment and intangible assets include
US$192 million for the disposal of 100 per cent interest in the Mount Pleasant
thermal coal project to MACH Energy Australia Pty Ltd on 5 August 2016.
(g) Closing cash and cash equivalents less overdrafts at 31 December 2016
differ from cash and cash equivalents on the balance sheet as they include
overdrafts of US$12 million (31 December 2015: US$12 million) reported within
'Borrowings and other financial liabilities'.
(h) Includes a cash outflow of US$29 million (2015: outflow of US$227
million) mainly relating to derivative contracts transacted for operational
purposes and not designated in a hedge relationship.
Group balance sheet
At 31 December
2016US$m 2015US$m
Non-current assets
Goodwill 951 892
Intangible assets 3,279 3,336
Property, plant and equipment 58,855 61,057
Investments in equity accounted units 5,019 4,941
Inventories 143 253
Deferred tax assets 3,728 3,309
Trade and other receivables 1,342 1,356
Tax recoverable 38 78
Other financial assets (including loans to equity accounted units) 822 788
74,177 76,010
Current assets
Inventories 2,937 3,168
Trade and other receivables 3,460 2,386
Tax recoverable 98 118
Other financial assets (including loans to equity accounted units) 359 223
Cash and cash equivalents 8,201 9,366
15,055 15,261
Assets of disposal groups held for sale (a) 31 293
Total assets 89,263 91,564
Current liabilities
Borrowings and other financial liabilities (922) (2,484)
Trade and other payables (6,361) (6,237)
Tax payable (764) (135)
Provisions including post-retirement benefits (1,315) (1,190)
(9,362) (10,046)
Non-current liabilities
Borrowings and other financial liabilities (17,470) (21,140)
Trade and other payables (789) (682)
Tax payable (274) (295)
Deferred tax liabilities (3,121) (3,286)
Provisions including post-retirement benefits (12,479) (11,876)
(34,133) (37,279)
Liabilities of disposal groups held for sale (a) (38) (111)
Total liabilities (43,533) (47,436)
Net assets 45,730 44,128
Capital and reserves
Share capital (b)
- Rio Tinto plc 224 224
- Rio Tinto Limited 3,915 3,950
Share premium account 4,304 4,300
Other reserves 9,216 9,139
Retained earnings 21,631 19,736
Equity attributable to owners of Rio Tinto 39,290 37,349
Attributable to non-controlling interests 6,440 6,779
Total equity 45,730 44,128
Group balance sheet (continued)
(a) Assets and liabilities held for sale at 31 December 2016 comprise Rio
Tinto's interests in the Blair Athol coal project and certain assets related
to cancelled projects at Rio Tinto Kennecott.
Assets and liabilities held for sale as at 31 December 2015
comprised Rio Tinto's interests in the Blair Athol coal project, Carbone
Savoie (disposed of on 31 March 2016), Bengalla (disposed of on 1 March 2016)
and Molybdenum Autoclave Process.
(b) At 31 December 2016, Rio Tinto plc had 1,374.8 million ordinary
shares on issue and held by the public, and Rio Tinto Limited had 424.2
million shares on issue and held by the public. No shares in Rio Tinto Limited
were held by Rio Tinto plc at 31 December 2016 (31 December 2015: nil). As
required to be disclosed under the ASX Listing Rules, the net tangible assets
per share amounted to US$19.49 (31 December 2015: US$18.42).
Group statement of changes in equity
Year ended 31 December 2016
Attributable to owners of Rio Tinto
Share capital Share Other Retained Total Non-controlling Total
US$m premium reserves earnings US$m interests equity
US$m US$m US$m US$m US$m
Opening balance 4,174 4,300 9,139 19,736 37,349 6,779 44,128
Total comprehensive income for the year (a) - - (49) 4,553 4,504 209 4,713
Currency translation arising onRio Tinto Limited's share capital (35) - - - (35) - (35)
Dividends - - - (2,725) (2,725) (352) (3,077)
Companies no longer consolidated - - - - - 8 8
Own shares purchased from Rio Tinto shareholders to satisfy share options - - (43) (37) (80) - (80)
Change in equity interest held by Rio Tinto (b) - - 108 40 148 (313) (165)
Treasury shares reissued and other movements - 4 - - 4 - 4
Equity issued to holders of non-controlling interests - - - - - 109 109
Employee share options and other IFRS 2 charges to the income statement - - 61 64 125 - 125
Closing balance 4,139 4,304 9,216 21,631 39,290 6,440 45,730
Year to 31 December 2016US$ Year to 31 December 2015US$
Dividends per share: paid during the year 152.5c 226.5c
Dividends per share: proposed in the announcement of the results for the year 125.0c 107.5c
Year ended 31 December 2015
Attributable to owners of Rio Tinto
Share capital Share Other Retained Total Non-controlling Total
US$m premium reserves earnings US$m interests equity
US$m US$m US$m US$m US$m
Opening balance 4,765 4,288 11,122 26,110 46,285 8,309 54,594
Total comprehensive loss for the year (a) - - (2,020) (423) (2,443) (1,306) (3,749)
Currency translation arising onRio Tinto Limited's share capital (503) - - - (503) - (503)
Dividends - - - (4,076) (4,076) (315) (4,391)
Share buyback (c) (88) - 6 (1,946) (2,028) - (2,028)
Companies no longer consolidated - - - - - 5 5
Own shares purchased from Rio Tinto shareholders to satisfy share options - - (25) (28) (53) - (53)
Change in equity interest held by Rio Tinto - - - 20 20 (17) 3
Treasury shares reissued and other movements - 12 - 1 13 - 13
Equity issued to holders of non-controlling interests - - - - -- 103 103
Employee share options and other IFRS 2 charges to the income statement - - 56 78 134 - 134
Closing balance 4,174 4,300 9,139 19,736 37,349 6,779 44,128
Group statement of changes in equity (continued)
(a) Refer to the Group statement of comprehensive income for further
details. Adjustments to other reserves include currency translation
attributable to owners of Rio Tinto, other than that arising on Rio Tinto
Limited share capital.
(b) The restructure of Coal & Allied Industries Limited completed on 3
February 2016. The restructure involved the exchange of a 32.4 per cent
interest in Hunter Valley Operations for an additional 20 per cent
shareholding in Coal & Allied Industries Limited, increasing Rio Tinto's
shareholding of Coal & Allied Industries Limited from 80 per cent to 100 per
cent.
(c) In 2015, the amount of US$2,028 million was own shares purchased from
owners of Rio Tinto as part of the share buy-back programme.
Reconciliation with Australian Accounting Standards
The financial information in this report has been prepared in accordance with
IFRS as defined in the accounting policies' notes in this report, which
differs in certain respects from the version of International Financial
Reporting Standards that is applicable in Australia, referred to as Australian
Accounting Standards (AAS).
Prior to 1 January 2004, the Group's financial statements were prepared in
accordance with UK GAAP. Under IFRS, goodwill on acquisitions prior to 1998,
which was eliminated directly against equity in the Group's UK GAAP financial
statements, has not been reinstated. This was permitted under the rules
governing the transition to IFRS set out in IFRS 1. The equivalent Australian
Standard, AASB 1, does not provide for the netting of goodwill against equity.
As a consequence, shareholders' funds under AAS include the residue of such
goodwill, which amounted to US$561 million at 31 December 2016 (2015: US$560
million).
Save for the exception described above, the financial information in this
report drawn up in accordance with IFRS is consistent with the requirements of
AAS.
Consolidated net debt
At 31 December
2016US$m 2015US$m
Analysis of changes in consolidated net debt (a)
Opening balance (13,783) (12,495)
Adjustment on currency translation (103) 1,586
Exchange gains/(losses) charged to the income statement 193 (1,630)
Cash movements excluding exchange movements 3,915 (1,109)
Other movements 191 (135)
Closing balance (9,587) (13,783)
Total borrowing in balance sheet (b) (17,630) (23,063)
Derivatives related to net debt (included in "Other financial assets/liabilities") (408) (86)
Adjusted total borrowings (18,038) (23,149)
Cash and cash equivalents 8,201 9,366
Other investments (c) 250 -
Consolidated net debt (9,587) (13,783)
(a) Consolidated net debt is stated net of the impact of certain funding
arrangements between equity accounted units and partially owned subsidiaries
(equity accounted unit funded balances). This adjustment is required in order
to avoid showing borrowings twice in the net debt disclosure, where funding
has been provided to an equity accounted unit by the Group and subsequently
on-lent by the equity accounted unit to a consolidated Group subsidiary.
(b) Total borrowings are combined with other current financial
liabilities of US$205 million (31 December 2015: US$231 million) and other
non-current financial liabilities of US$557 million (31 December 2015: US$330
million) in the balance sheet.
(c) Other investments comprise fixed income securities in separately
managed investment funds, classified as held for trading.
Geographical analysis (by destination)
Years ended 31 December
2016 % Adjusted2015(b)% 2016US$m Adjusted2015(b)US$m
Consolidated sales revenue by destination (a)
China 42.6 41.8 14,405 14,566
Other Asia 14.8 13.7 5,011 4,762
United States of America 14.1 15.5 4,762 5,400
Japan 10.9 11.2 3,681 3,907
Europe (excluding UK) 7.8 8.5 2,621 2,970
Canada 3.3 3.4 1,099 1,167
Australia 2.1 2.5 715 866
United Kingdom 1.0 1.0 352 339
Other 3.4 2.4 1,135 852
Consolidated sales revenue 100.0 100.0 33,781 34,829
(a) Consolidated sales revenue by geographical destination is based on
the ultimate country of destination of the product, if known. If the eventual
destination of the product sold through traders is not known then revenue is
allocated to the location of the product at the time when the risks and
rewards of ownership are transferred. Rio Tinto is domiciled in both the UK
and Australia.
(b) 2015 comparative figures are adjusted to conform with the 2016
presentation of consolidated sales revenue, where previously gross sales
revenue was presented. The 2015 comparatives above have been amended to
correct the allocation of revenues by region. The impact is to decrease the
amount allocated to Canada by $321 million and to increase other regions in
aggregate by the same amount.
Prima facie tax reconciliation
Years ended 31 December
2016US$m 2015US$m
Profit/(loss) before taxation 6,343 (726)
Deduct: share of profit after tax of equity accounted units (321) (361)
Parent companies' and subsidiaries' profit/(loss) before tax 6,022 (1,087)
Prima facie tax payable/(receivable) at UK rate of 20 per cent (2015: 20 per cent) 1,204 (217)
Higher rate of taxation on Australian earnings 604 506
Impact of items excluded in arriving at underlying earnings (a):
Impairment charges net of reversals (16) 615
Gains and losses on disposal and consolidation of businesses 30 (11)
Foreign exchange on excluded finance items (33) 481
Onerous port and rail contracts (46) -
Closure provision for legacy operations (40) -
Tax provision 380 -
Recognition of deferred tax assets relating to planned divestments - (250)
Other exclusions (48) (17)
Impact of changes in tax rates and laws (9) (3)
Other tax rates applicable outside the UK and Australia on underlying earnings (283) (68)
Resource depletion and other depreciation allowances (15) (15)
Research, development and other investment allowances (15) (21)
Recognition of previously unrecognised deferred tax assets (154) (40)
Unrecognised current year operating losses 25 45
Other items (b) (17) (12)
Total taxation charge (c) 1,567 993
Prima facie tax reconciliation (continued)
(a) The impact for each item includes the effect of tax rates applicable
outside the UK.
(b) Other items include various adjustments to provisions for taxation of
prior periods.
(c) This tax reconciliation relates to the Group's parent companies,
subsidiaries and joint operations. The Group's share of profit of equity
accounted units is net of tax charges of US$156 million (31 December 2015:
US$177 million).
Acquisitions and Disposals
2016 and 2015 Acquisitions
There were no material acquisitions during the years ended 31 December 2016 or
31 December 2015.
2016 Disposals
On 1 March 2016, Rio Tinto disposed of its 40 per cent interest in the
Bengalla Joint Venture to New Hope Corporation Limited for US$599 million (net
of working capital adjustments, transaction costs and cash disposed of in the
Joint Venture).
On 31 March 2016, Rio Tinto disposed of its 100 per cent interest in Carbone
Savoie to Alandia Industries.
Rio Tinto transferred its 53.83 per cent shareholding in Bougainville Copper
Limited ("BCL") to Equity Trustees Limited (independent trustee) on 30 June
2016 for nil consideration. Equity Trustees Limited subsequently distributed
the shares in accordance with the trust deed to nominees of each of the
Autonomous Bougainville Government (36.4 per cent) and the Independent State
of Papua New Guinea (17.4 per cent) such that each party now controls an equal
share of BCL (36.4 per cent). The Group did not previously consolidate BCL as
it was determined that in accordance with IFRS, as defined under Accounting
Policies, that the Group does not control the relevant activities, being the
mining of copper at the Panguna mine, which was brought to a halt by militant
activity in 1989. The carrying value has previously been fully impaired and
therefore the transfer resulted in no financial impact for the year ended 31
December 2016.
On 2 September 2016, Rio Tinto disposed of its interest in Zululand Anthracite
Colliery.
On 23 November 2016, Rio Tinto disposed of its 100 per cent interest in
Lochaber to SIMEC for US$410 million (before finalisation of closing
adjustments and transaction costs) of which US$224 million has been received
and US$186 million payment is due in the first half of 2017.
2015 Disposals
On 23 April 2015, Turquoise Hill Resources disposed of 25.7 per cent of its
interest in SouthGobi Resources Ltd to Novel Sunrise Investments. As at 31
December 2015 Turquoise Hill Resource's interest in SouthGobi Resources Ltd
was no longer consolidated as a subsidiary and was classified as an available
for sale investment.
On 17 June 2015, Rio Tinto disposed of its 77.8 per cent interest in Murowa
Diamonds and 50 per cent interest in Sengwa Colliery Ltd (Sengwa) to RZ Murowa
Holdings Limited.
Rio Tinto completed the sale of ECL to Fives on 9 July 2015 and the sale of
Alesa to Groupe Reel on 24 November 2015.
Events after the balance sheet date
On 24 January 2017, the Group announced it had reached a binding agreement for
the sale of its wholly-owned Australian subsidiary Coal & Allied Industries
Limited to Yancoal Australia Limited for up to $2.45 billion comprising an
initial $1.95 billion cash payment, payable at completion; and $500 million in
aggregate deferred cash payments, payable as annual instalments of $100
million over five years following completion.
Yancoal Australia is entitled to elect, prior to 24 February 2017, for an
alternative purchase price structure of a single cash payment at completion of
$2.35 billion. Rio Tinto will use the consideration received for general
corporate purposes.
Except as disclosed above, no significant events were identified after the
balance sheet date.
Accounting policies
The financial information included in this report has been prepared in
accordance with applicable UK law, applicable Australian law as amended by the
Australian Securities and Investments Commission Order dated 14 December 2015,
Article 4 of the European Union IAS regulation and with:
- International Financial Reporting Standards as issued by the International
Accounting Standards Board (IASB) and interpretations issued from time to time
by the IFRS Interpretations Committee (IFRS IC) both as adopted by the
European Union (EU) and which are mandatory for EU reporting as at 31 December
2016; and
- International Financial Reporting Standards as issued by the IASB and
interpretations issued from time to time by the IFRS IC which are mandatory as
at 31 December 2016.
The above accounting standards and interpretations are collectively referred
to as 'IFRS' in this report. Whilst the financial information included in this
report has been prepared in accordance with IFRS the report does not contain
all the information required to comply with IFRS. The Group will publish full
financial statements that comply with IFRS in March 2017.
The Group has not early adopted any other amendments, standards or
interpretations that have been issued but are not yet mandatory. The financial
information has been prepared on the basis of accounting policies consistent
with those applied in the financial statements for the year ended 31 December
2015 except for the implementation of a number of minor amendments issued by
the IASB and endorsed by the EU which applied for the first time in 2016.
These new pronouncements do not have a significant impact on the accounting
policies, methods of computation or presentation applied by the Group and
therefore prior period financial information has not been restated.
In relation to accounting pronouncements which are mandatory in 2017 and
beyond, "Amendments to IAS 12: Recognition of Deferred Tax Assets for
Unrealised Losses" and "IAS 7 - Statement of cash flows, Narrow-scope
amendments" are mandatory in 2017. The Group does not expect these
pronouncements to have a significant impact on the accounting policies or
methods of computation applied by the Group.
IFRS 15 "Revenue from Contracts with Customers", IFRS 9 "Financial
Instruments" and IFRIC 22 "Foreign Currency Transactions and Advance
Consideration" are mandatory in 2018 and IFRS 16 ''Leases'' is mandatory in
2019. The Group is currently evaluating these pronouncements and work will
continue during 2017 and, for IFRS 16, 2018 as well. The most significant
measurement impact is likely to be from IFRS 16 under which the present value
of the Group's operating lease commitments as defined under the standard,
other than short term and low value leases, will be shown as liabilities and
right of use assets on the balance sheet. The undiscounted amount of the
Group's operating leases commitments at 31 December 2015 disclosed under IAS
17, the current leasing standard, was $2.2 billion.
IFRS 15 and IFRS 9 have been endorsed by the EU; EU endorsement of the other
standard, amendments and interpretations mentioned above is outstanding. More
detailed information on progress to date on these new accounting
pronouncements will be included in the Group's 2016 accounts.
Non-GAAP measures
The Group presents certain non-GAAP financial measures, including underlying
earnings, which are reconciled to directly comparable IFRS financial measures
on page 46 of this report. These non-GAAP measures are used internally by
management to assess the performance of the business and may therefore be
useful to investors. They are not a substitute for the IFRS measures and
should be considered alongside those measures.
Summary financial data in Australian dollars, Sterling and US dollars
2016A$m 2015A$m 2016£m 2015£m 2016US$m 2015US$m
47,467 48,878 26,043 24,063 Gross sales revenue 35,318 36,784
45,401 46,281 24,909 22,784 Consolidated sales revenue 33,781 34,829
8,525 (965) 4,677 (475) Profit/(loss) before tax from continuing operations 6,343 (726)
6,419 (2,284) 3,522 (1,124) Profit/(loss) for the year from continuing operations 4,776 (1,719)
6,205 (1,151) 3,404 (567) Net earnings/(loss) attributable to owners of Rio Tinto 4,617 (866)
6,854 6,033 3,761 2,970 Underlying earnings (a) 5,100 4,540
345.2c (63.1)c 189.4p (31.0)p Basic earnings/ (loss) per share (b) 256.9c (47.5)c
381.4c 330.6c 209.2p 162.8p Basic underlying earnings per share (a), (b) 283.8c 248.8c
Dividends per share to Rio Tinto shareholders (c)
211.02c 297.89c 108.01p 146.90p - paid 152.5c 226.5c
163.62c 151.89c 100.56p 74.21p - proposed 125.0c 107.5c
8,549 6,356 4,690 3,129 Cash flow before financing activities 6,361 4,783
(13,281) (18,924) (7,836) (9,294) Net debt (9,587) (13,783)
54,428 51,280 32,116 25,184 Equity attributable to owners of Rio Tinto 39,290 37,349
(a) Underlying earnings exclude net impairment and other charges of
US$483 million (31 December 2015: US$5,406 million).
(b) Basic earnings/(loss) per share and basic underlying earnings per
share do not recognise the dilution resulting from share options on issue.
(c) The Australian dollar and Sterling amounts are based on the US dollar
amounts, retranslated at average or closing rates as appropriate, except for
the dividends which are the actual amounts paid or payable.
Metal prices and exchange rates
2016 2015 Increase/(decrease)
Metal prices - average for the year
Copper - US cents/lb 221c 249c (11%)
Aluminium - US $/tonne US$1,605 US$1,661 (3%)
Gold - US$/troy oz US$1,250 US$1,160 8%
Average exchange rates against the US dollar
Sterling 1.36 1.53 (11%)
Australian dollar 0.74 0.75 (1%)
Canadian dollar 0.76 0.78 (3%)
Euro 1.11 1.11 0%
South African rand 0.068 0.079 (14%)
Year-end exchange rates against the US dollar
Sterling 1.22 1.48 (17%)
Australian dollar 0.72 0.73 (1%)
Canadian dollar 0.74 0.72 3%
Euro 1.05 1.09 (4%)
South African rand 0.073 0.064 15%
Reconciliation of net earnings/(losses) to underlying earnings
Exclusions from underlying earnings Pre-tax Taxation Non-controlling Net Net amount 2015
2016 2016 interests amount US$m
US$m US$m 2016 2016
US$m US$m
Impairment charges (a) (249) 66 - (183) (1,802)
Net gains on disposal of interests in businesses (b) 515 (133) - 382 48
Exchange and derivative gains/(losses):
- Exchange gains/(losses) on US dollar net debt and intragroup balances (c) 603 (88) 1 516 (3,282)
- Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting (d) (22) 6 4 (12) (88)
- Gains on commodity derivatives not qualifying for hedge accounting (e) 41 (9) - 32 88
Onerous port and rail contracts (f) (469) 140 - (329) -
Restructuring costs including global headcount reductions (265) 71 17 (177) (258)
Increased closure provision for legacy operations (g) (402) 120 - (282) (233)
Tax provision (h) - (380) - (380) -
Recognition of deferred tax assets relating to planned divestments - - - - 234
Other exclusions (i) (102) 52 - (50) (113)
Total excluded from underlying earnings (350) (155) 22 (483) (5,406)
Net earnings/(losses) 6,343 (1,567) (159) 4,617 (866)
Underlying earnings 6,693 (1,412) (181) 5,100 4,540
Underlying earnings are reported by Rio Tinto to provide greater understanding
of the underlying business performance of its operations. Underlying earnings
and net earnings/(losses) both represent amounts attributable to owners of Rio
Tinto. Exclusions from underlying earnings relating to equity accounted units
are stated after tax and included in the column 'Pre-tax'. Items (a) to (i)
below are excluded from net earnings/(losses) in arriving at underlying
earnings.
(a) Impairment charges during the year ended 31 December 2016 primarily
relate to the Argyle diamond mine in Western Australia. An impairment trigger
assessment at the Argyle cash-generating unit resulted in the identification
of impairment indicators as a result of lower production volumes compared with
forecast and the lower prices achieved for bulk diamonds. The reduction in
the recoverable amount resulted in a pre-tax impairment charge of US$241
million to property, plant and equipment and intangible assets.
Impairment charges during the year ended 31 December 2015 primarily related to
the Simandou project in Guinea. Market conditions and uncertainty over
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