REG - Rio Tinto - Rio Tinto 2016 half year results <Origin Href="QuoteRef">RIO.L</Origin> - Part 4
03/08/2016 07:35
- Part 4: For the preceding part double click ID:nRSC0884Gc
92 2 3 62
Other investments, including loans(d) 200 108 - 69 23
Trade receivables(e) 967 - 18 - 949
1,326 200 20 72 1,034
Derivatives
Forward contracts and option contracts, not designated as hedges(f) 422 - 4 418 -
Derivatives related to net debt(g) 190 - 190 - -
1,938 200 214 490 1,034
Fair value disclosure for financial instruments (continued)
The table below shows the financial instruments carried at fair value by valuation method at 31 December 2015:
Total Level 1 (a) (h) Level 2 (b) (h) Level 3 (c) (h) Not held at fair value
US$m US$m US$m US$m US$m
Assets
Equity shares and quoted funds 157 87 7 10 53
Other investments, including loans(d) 206 99 - 71 36
Trade receivables(e) 1,370 - 12 - 1,358
1,733 186 19 81 1,447
Derivatives
Forward contracts: designated as hedges(f) 5 - - 5 -
Forward contracts and option contracts, not designated as hedges(f) 363 - (7) 370 -
Derivatives related to net debt(g) (86) - (86) - -
2,015 186 (74) 456 1,447
(a) Valuation is based on unadjusted quoted prices in active markets for identical financial instruments. This category
includes listed equity shares and other quoted funds.
(b) Valuation is based on inputs that are observable for the financial instruments; these include quoted prices for
similar instruments or identical instruments in markets which are not considered to be active, or inputs, either directly
or indirectly based on observable market data.
(c) Valuation is based on inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
(d) Other investments, including loans, comprise: cash deposits in rehabilitation funds, government bonds and royalty
amounts receivable. The royalty receivables are valued based on an estimate of forward sales subject to the royalty
agreement.
(e) Trade receivables includes provisionally priced receivables relating to sales contracts where selling price is
determined after delivery to the customer, based on the market price at the relevant quotation point stipulated in the
contract. Revenue is recognised on provisionally priced sales based on the forward selling price for the period stipulated
in the contract.
(f) Level 3 derivatives consist of derivatives embedded in electricity purchase contracts linked to the LME with terms
expiring between 2016 and 2030. The embedded derivatives are measured using discounted cash flows and option model
valuation techniques. Long-term embedded derivatives with a fair value of US$397 million at 30 June 2016 are valued using
significant unobservable inputs as the term of the derivative extends beyond the forward curve for aluminium.
Aluminium prices are flat lined beyond the market forward curve and increased by projected inflation up to the date of
expiry of the contract.
The range of market prices is US$2,104 per metric tonne in 2026 to US$2,304 in 2030.
The other contracts with a fair value of US$21 million at 30 June 2016 are categorised as level three as the market premium
assumptions used represent unobservable inputs.
Fair value disclosure for financial instruments (continued)
(g) Interest rate and currency interest rate swaps are valued using applicable market quoted swap yield curves adjusted
for relevant basis and credit default spreads. Currency interest rate swap valuations also use market quoted foreign
exchange rates. A discounted cash flow approach is applied to the cash flows derived from the inputs to determine fair
value.
(h) There were no transfers between Level 1 and Level 2 or between Level 2 and Level 3 for the six months to 30 June 2016
or the year to 31 December 2015.
Level 3 Financial instruments
The table below shows the summary of changes in the fair value of the Group's Level 3 financial assets and financial
liabilities for the six months to 30 June 2016 and the year ended 31 December 2015.
Level 3 Financial assets and liabilities 30 June 31 December
2016 2015
Opening balance 456 282
Currency translation adjustments 11 (43)
Losses realised included in:
- Net operating costs - 6
Gains unrealised included in:
- Net operating costs 35 196
Total unrealised (losses) or gains transferred to other comprehensive income (12) 15
Closing balance 490 456
Total gains/(losses) included in the income statement for assets and liabilities 12 (15)
Sensitivity analysis in respect of level 3 derivatives
Forward contracts and options whose carrying value are valued using unobservable inputs are calculated using appropriate
discounted cash flow and option model valuation techniques.
The most significant of these assumptions relate to long term pricing wherein internal pricing assumptions are used after
the 10 year LME curve. A 10 per cent increase in long term metal pricing assumptions would result in a US$31 million (31
December 2015: US$38 million) decrease in carrying value. A 10 per cent decrease in long term metal pricing assumptions
would result in a US$42 million (31 December 2015: US$39 million) increase in carrying value.
Acquisitions and disposals
30 June 2016
Acquisitions
There were no material acquisitions during the six months ended 30 June 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$617 million.
On 31 March 2016, Rio Tinto disposed of its 100 per cent interest in Carbone Savoie to Alandia Industries.
On 30 June 2016, Rio Tinto transferred its 53.83 per cent shareholding in Bougainville Copper Limited (BCL) to Equity
Trustees Limited (independent trustee) for nil consideration. BCL was not a subsidiary of Rio Tinto as the Group did not
control the relevant activities of BCL. Mining at BCL has been suspended since 1989. There is nil impact on the financial
statements as a result of the transfer of shareholding.
30 June 2015
Acquisitions
There were no material acquisitions during the six months ended 30 June 2015.
Disposals
On 23 April 2015, Turquoise Hill disposed of 25.7 per cent of its interest in SouthGobi Resources to Novel Sunrise
Investments.
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 to RZ Murowa Holdings Limited.
Other disclosures
Capital commitments at 30 June 2016
Capital commitments, excluding the Group's share of joint venture capital commitments, were US$912 million (31 December
2015: US$834 million).
The Group's share of joint venture capital commitments was US$243 million (31 December 2015: US$357 million).
The Group has a commitment to purchase and market a portion (in excess of the Group's ownership interest) of the output of
Sohar Aluminium Company L.L.C., an aluminium smelter in which the Group is a joint venturer. The Group immediately sells
the purchased products to third parties.
For Sohar Aluminium Company L.L.C. the Group, along with the other joint venturers, has made various commitments to provide
shareholder funding as required, subject to approved thresholds.
At 30 June 2015, Minera Escondida Limitada held a shareholder line of credit for US$225 million (Rio Tinto share) which was
undrawn at that date. This line of credit matured during the year ended 31 December 2015.
Other disclosures (continued)
Contingent liabilities (subsidiaries and joint operations)
Contingent liabilities, indemnities and other performance guarantees were US$292 million at 30 June 2016 (31 December 2015:
US$226 million).
Indemnities and other performance guarantees represent the potential outflow of funds from the Group for the satisfaction
of obligations including those under contractual arrangements (for example undertakings related to supplier agreements) not
provided for in the balance sheet, where the likelihood of the guarantees or indemnities being called is assessed as
possible rather than probable or remote. There were no material contingent liabilities arising in relation to the Group's
joint ventures and associates.
Marketing of iron ore is undertaken in the Singapore Commercial Centre by Rio Tinto Iron Ore Asia Pte Ltd (RTIOA), which is
remunerated on an arm's length basis by the Group's iron ore product group. The arrangements are under review by the
Australian Tax Office (ATO). Rio Tinto considers the arrangements to be in accordance with transfer pricing law, and will
therefore vigorously defend its position in the event of any ATO challenge.
The Group is subject to certain legal proceedings, claims, complaints and investigations arising out of the ordinary course
of business. Legal proceedings include, but are not limited to, alleged breach of contract and alleged breach of
environmental, competition, securities and health and safety laws. The Group may not be insured fully, or at all, in
respect of such risks. The Group cannot predict the outcome of individual legal actions. The Group may settle litigation or
regulatory proceedings prior to a final judgment or determination of liability. The Group may do so to avoid the cost,
management efforts or negative business, regulatory or reputational consequences of continuing to contest liability, even
when it believes it has valid defences to liability. The Group believes that no material loss to the Group is expected to
result from these legal proceedings, claims, complaints and investigations.
Contingent assets
The Group has, from time to time various insurance claims outstanding with reinsurers. These include a claim relating to
the Manefay slide at Rio Tinto Kennecott in April 2013. An interim progress payment was received on this claim in 2013 and
a second in 2015. Further receipts are considered possible but the amount cannot currently be reliably estimated.
Other disclosures (continued)
Related party matters
Purchases relate largely to amounts charged by equity accounted units for toll processing of alumina and purchases of
bauxite and aluminium. Sales relate largely to charges for supply of coal to jointly controlled marketing entities for
onward sale to third party customers. Details of the Group's principal equity accounted units are given in the 2015 Annual
report.
Income statement items Six monthsto 30 June2016US$m Six monthsto 30 June2015US$m
Purchases from equity accounted units (601) (615)
Sales to equity accounted units 117 121
Cash flow statement items
Dividends from equity accounted units 22 181
Net funding of equity accounted units (a) (5) 11
Balance sheet items 30 June2016US$m 31 December2015US$m
Investments in equity accounted units 5,056 4,941
Loans to equity accounted units 42 42
Loans from equity accounted units (37) (37)
Trade and other receivables: amounts due from equity accounted units 372 315
Trade and other payables: amounts due to equity accounted units (234) (231)
(a) In 2015 repayments of loans by equity accounted units exceeded the funding provided by Rio Tinto.
Rio Tinto plc guarantees to pay the Rio Tinto Pension Fund (UK) any contributions due from Group companies participating in
that fund, pro rata to its ownership of those companies and subject to certain conditions, in the event that the companies
fail to meet their contribution requirements. Furthermore, Rio Tinto plc has in place a guarantee for the Rio Tinto Pension
Fund, in the standard form required by the Pension Protection Fund ('PPF'), to cover 105 per cent of the Fund's liabilities
measured on the PPF's prescribed assumptions. Other similar guarantees in place include a Rio Tinto plc guarantee to the
Rio Tinto 2009 pension fund, with no limit on liabilities.
In February 2011 an agreement between Alcan Holdings Switzerland and the Alcan Schweiz pension fund was executed whereby
the funding deficit as at 31 December 2010 in relation to the pensioner population will be funded by Alcan Holdings
Switzerland over a six year period.
Events after the balance sheet date
No events were identified after the balance sheet date which could be expected to have a material impact on the
consolidated preliminary financial information included in this report.
Basis of preparation
The condensed consolidated interim financial statements included in this interim report have been prepared in accordance
with International Accounting Standard ('IAS') 34 'Interim financial reporting' as adopted by the European Union ('EU'),
the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority ('FCA') applicable to interim financial
reporting and an Order under section 340 of the Australian Corporations Act 2001 issued by the Australian Securities and
Investments Commission on 14 December 2015.
These condensed interim financial statements represent a 'condensed set of financial statements' as referred to in the DTR
issued by the FCA. Accordingly, they do not include all of the information required for a full annual financial report and
are to be read in conjunction with the Group's annual financial statements for the year ended 31 December 2015 and any
public announcements made by the Group during the interim reporting period. These annual financial statements were prepared
on a going concern basis in accordance with the Companies Act 2006 applicable to companies reporting under International
Financial Reporting Standards and in accordance with applicable UK law, applicable Australian law as amended by the
Australian Securities and Investments Commission Order dated 14 December 2015 and 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 and which were mandatory for EU reporting as at 31 December 2015; and
- International Financial Reporting Standards as issued by the IASB and interpretations issued from time to time by the
IFRS IC which were mandatory as at 31 December 2015.
The condensed financial statements are unaudited and do not constitute statutory accounts as defined in Section 434 of the
United Kingdom Companies Act 2006. The financial information for the year to 31 December 2015 included in this report has
been extracted from the full financial statements filed with the Registrar of Companies and does not constitute statutory
accounts as defined in section 434 of the Companies Act 2006. The Auditors' report on these full financial statements was
unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter
and did not contain statements 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 Companies Act 2006.
Accounting policies
The condensed consolidated interim financial statements have been drawn up on the basis of accounting policies, methods of
computation and presentation consistent with those applied in the financial statements for the year ended 31 December 2015,
and in the corresponding interim period, except for the adoption of a number of amendments issued by the International
Accounting Standards Board ('IASB') and endorsed by the EU which apply for the first time in 2016. This basis of accounting
is referred to as 'IFRS' in this report. The new pronouncements do not have a significant impact on the accounting
policies, methods of computation or presentation applied by the Group and therefore the prior period consolidated financial
statements have not been restated. The Group has not early adopted any amendments, standards or interpretations that have
been issued but are not yet effective.
The critical accounting judgements and key sources of estimation uncertainty for the half year are the same as those
disclosed in the Group's consolidated financial statements for the year ended 31 December 2015.
The financial information by business unit and the geographic analysis of sales by destination provided on pages 10 to 13
and 45 of this press release respectively, satisfy the disclosure requirements of IFRS 8 'Operating Segments' for interim
financial statements and also provide additional voluntary disclosure which the Group considers is useful to the users of
the financial statements.
Going concern
After making enquiries and having reassessed the principal risks, the directors considered it appropriate to adopt the
going concern basis of accounting in preparing the interim financial information.
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 61 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.
Directors' statement of responsibility
In the directors' opinion:
The condensed consolidated interim financial statements on pages 33 to 54 including the notes have been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union, the Disclosure and Transparency
Rules ('DTR') of the Financial Conduct Authority in the United Kingdom, applicable accounting standards and the Australian
Corporations Act 2001 as modified by an order of the Australian Securities and Investments Commission issued on 14 December
2015, using the most appropriate accounting policies for Rio Tinto's business and supported by reasonable and prudent
judgements.
The condensed consolidated interim financial statements give a true and fair view of the Rio Tinto Group's financial
position as at 30 June 2016 and of its performance, as represented by the results of its operations, comprehensive income
and expense and its cash flows for the six months then ended.
There are reasonable grounds to believe that each of the Rio Tinto Group, Rio Tinto Limited and Rio Tinto plc will be able
to pay its debts as and when they become due and payable.
The interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
- an indication of important events that have occurred during the first six months and their impact on the condensed
set of consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six
months of the financial year; and
- material related-party transactions in the first six months and any material changes in the related-party
transactions described in the last annual report.
Signed in accordance with a resolution of the Board of Directors.
Jean-Sébastien Jacques
Chief executive
3 August 2016
Jan du Plessis
Chairman
3 August 2016
Auditor's Independence Declaration
As lead auditor for the review of Rio Tinto Limited for the half-year ended 30 June 2016, I declare that to the best of my
knowledge and belief, there have been:
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and
b) no contraventions of any applicable code of professional conduct in relation to the review.
This declaration is in respect of Rio Tinto Limited and the entities it controlled during the period.
Paul Bendall
Partner
PricewaterhouseCoopers
Melbourne
3 August 2016
Liability limited by a scheme approved under Professional Standards Legislation
Independent review report of PricewaterhouseCoopers LLP to the members of Rio Tinto plc and PricewaterhouseCoopers to the
members of Rio Tinto Limited
Introduction
For the purpose of this report, the terms 'we' and 'our' denote PricewaterhouseCoopers LLP in relation to UK legal,
professional and regulatory responsibilities and reporting obligations to Rio Tinto plc and PricewaterhouseCoopers in
relation to Australian legal, professional and regulatory responsibilities and reporting obligations to Rio Tinto Limited.
We have been engaged by Rio Tinto plc and Rio Tinto Limited (the 'Companies') to review the interim financial information
in the interim report of the Rio Tinto Group comprising the Companies and their subsidiaries, associates and joint ventures
(the 'Group') for the six months ended 30 June 2016, which comprises the Group income statement, Group statement of
comprehensive income, Group cash flow statement, Group balance sheet, Group statement of changes in equity and related
notes (including the financial information by business unit). We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material inconsistencies with the information in
the interim financial information.
PricewaterhouseCoopers has also reviewed the directors' declaration set out on page 55 in relation to Australian regulatory
requirements.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the directors of the Companies. The directors are
responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority and the Corporations Act 2001 in Australia as amended by the Australian Securities
and Investments Commission Order dated 14 December 2015 (the 'ASIC Order' described in the Australian Corporations Act -
Summary of ASIC relief) and for such internal control as the directors determine necessary to enable the preparation of the
interim report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
As disclosed in Note 1 Principal Accounting Policies of the 2015 Annual Report, the financial statements of the Group are
prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. The
interim financial information included in this interim report has been prepared in accordance with International Accounting
Standard IAS 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Our responsibility
Our responsibility is to express a conclusion on the interim financial information in the interim report based on our
review. PricewaterhouseCoopers LLP have prepared this review report, including the conclusion, for and only for Rio Tinto
plc for the purpose of the Disclosure and Transparency Rules of the Financial Conduct Authority and PricewaterhouseCoopers
have prepared this review report, including the conclusion, for and only for Rio Tinto Limited for the purpose of the
Corporations Act 2001 in Australia as amended by the ASIC Order and for no other purpose. We do not, in producing this
report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) ISRE 2410, Review
of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board
for use in the United Kingdom and the Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report
Performed by the Independent Auditor of the Entity. As the auditor of the Group, ISRE 2410 and ASRE 2410 require that we
comply with the ethical requirements relevant to the audit of the annual financial report.
A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on Auditing (UK and Ireland) or Australian Auditing Standards
and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of the Corporations Act 2001 in Australia.
Conclusion of PricewaterhouseCoopers LLP for Rio Tinto plc
Based on our review, nothing has come to our attention that causes us to believe that the interim financial information in
the interim report of the Group for the six months ended 30 June 2016 is not prepared, in all material respects, in
accordance with International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Conclusion of PricewaterhouseCoopers for Rio Tinto Limited
Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim
report of Rio Tinto Limited is not in accordance with the Corporations Act 2001 in Australia as amended by the ASIC Order,
including:
a) giving a true and fair view of the Group's financial position as at 30 June 2016 and of its performance for the
half-year ended on that date; and
b) complying with International Accounting Standard IAS 34 Interim Financial Reporting as adopted by the European Union
and the Corporations Regulations 2001 in Australia.
PricewaterhouseCoopers LLPChartered AccountantsLondon3 August 2016in respect of Rio Tinto plc Paul Bendall PartnerPricewaterhouseCoopersChartered AccountantsMelbourne3 August 2016in respect of Rio Tinto Limited Liability limited by a schemeapproved under ProfessionalStandards Legislation
(a) The maintenance and integrity of the Rio Tinto Group website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom and Australia governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Summary financial data in Australian dollars, Sterling and US dollars
30 June2016A$m 30 June 2015A$m 30 June2016£m 30 June 2015£m 30 June2016US$m 30 June 2015US$m
22,195 24,569 11,358 12,619 Gross sales revenue 16,293 19,228
21,115 22,975 10,805 11,800 Consolidated sales revenue 15,500 17,980
2,858 2,230 1,463 1,145 Profit before tax from continuing operations 2,098 1,745
2,372 1,021 1,214 524 Profit for the period from continuing operations 1,741 799
Net earnings attributable to
2,334 1,030 1,194 529 Rio Tinto shareholders 1,713 806
2,129 3,735 1,090 1,918 Underlying earnings(a) 1,563 2,923
129.8c 55.9c 66.4p 28.7p Basic earnings per ordinary share(b) 95.3c 43.8c
118.5c 203.3c 60.6p 104.4p Basic underlying earnings per ordinary share(a), (b) 87.0c 159.1c
Dividends per share to owners of Rio Tinto(c)
151.89c 152.98c 74.21p 77.98p - paid 107.5c 119.0c
59.13c 144.91c 33.80p 68.92p - proposed 45.0c 107.5c
3,546 2,577 1,815 1,324 Cash flow before financing activities 2,603 2,017
30 June 31 December 30 June 31 December 30 June 31 December
2016 2015 2016 2015 2016 2015
A$m A$m £m £m US$m US$m
(17,383) (18,924) (9,579) (9,294) Net debt (12,904) (13,783)
50,507 51,280 27,831 25,184 Equity attributable to Rio Tinto shareholders 37,493 37,349
(a) Underlying earnings exclude impairment charges and other net gains totalling US$150 million (30 June 2015: charges of
US$2,117 million).
(b) Basic earnings per ordinary share and basic Underlying earnings per ordinary share do not recognise the dilution
resulting from share options on issue.
(c) The Australian dollar and Sterling amounts are based on the US dollar amounts, retranslated at average or closing
rates as appropriate, except for the dividends which are the actual amounts paid or payable.
Metal prices and exchange rates
Six months to 30 June2016 Six months to 30 June2015 Increase/(decrease)H1-16 Vs. H1-15 Year to 31December2015
Metal prices - average for the period
Copper - US cents/lb 213c 268c (21)% 249c
Aluminium - US$/tonne US$1,544 US$1,783 (13)% US$1,661
Gold - US$/troy oz US$1,221 US$1,206 1% US$1,160
Average exchange rates in US$
Sterling 1.43 1.52 (6)% 1.53
Australian dollar 0.73 0.78 (6)% 0.75
Canadian dollar 0.75 0.81 (7)% 0.78
Euro 1.12 1.12 0% 1.11
South African rand 0.065 0.084 (23)% 0.079
Period end exchange rates in US$
Sterling 1.35 1.57 (14)% 1.48
Australian dollar 0.74 0.77 (4)% 0.73
Canadian dollar 0.77 0.81 (5)% 0.72
Euro 1.11 1.12 (1)% 1.09
South African rand 0.067 0.081 (17)% 0.064
Availability of this report
This report is available on the Rio Tinto website (www.riotinto.com).
Reconciliation of net earnings to underlying earnings
Pre-taxHY2016US$m TaxHY2016US$m Non-controllinginterestsHY2016US$m NetamountHY2016US$m Net amount HY2015US$m
Exclusions from Underlying earnings
Impairment charges(a) (9) 2 - (7) (421)
Net gains on disposal of interests in businesses(b) 331 (138) - 193 11
Exchange and derivative gains/(losses):
- Exchange gains/(losses) on US dollar net debt and intragroup balances 516 (10) (4) 502 (1,319)
- Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting(c) 9 (1) 3 11 (24)
- Gains on commodity derivatives not qualifying for hedge accounting(d) 62 (17) - 45 37
Onerous port and rail contracts(e) (709) 213 - (496) -
Restructuring costs and global headcount reductions (122) 32 2 (88) (135)
Increased closure provision for legacy operations - - - - (242)
Other exclusions(f) (44) 34 - (10) (24)
Total excluded from underlying earnings 34 115 1 150 (2,117)
Net earnings 2,098 (357) (28) 1,713 806
Underlying earnings 2,064 (472) (29) 1,563 2,923
Underlying earnings is reported by Rio Tinto to provide greater understanding of the underlying business performance of its
operations. The measure of underlying earnings is used by the chief executive of Rio Tinto to assess the performance of the
product groups. Underlying earnings and Net earnings both represent amounts attributable to owners of Rio Tinto.
The following items are excluded from net earnings in arriving at underlying earnings in each period irrespective of
materiality:
- Net gains on disposal and consolidation of interests in businesses.
- Impairment charges and reversals of cash generating units.
- Profit/(loss) after tax from discontinued operations.
- Certain exchange and derivative gains and losses (as defined in the table above).
Exclusions from underlying earnings relating to equity accounted units are stated after tax and included in the column
'Pre-tax'. Items (a) to (f) below are excluded from net earnings in arriving at underlying earnings.
(a) Impairment charges during the period to 30 June 2015 included impairment at Energy Resources of Australia, Carbone
Savoie and other businesses in the Aluminium portfolio.
(b) For the period to 30 June 2016, a pre-tax gain of US$410 million (post-tax US$268 million) was recognised by Rio Tinto
on the sale of its 40 per cent interest in the Bengalla Joint Venture on 1 March 2016. This was partially offset by a loss
on disposal of the 100 per cent interest in Carbone Savoie on 31 March 2016.
The 2015 net post-tax gains on disposal of interests in businesses of US$11 million relate mainly to Turquoise Hill
Resources partial disposal of its shareholding in SouthGobi Resources.
Reconciliation of net earnings to underlying earnings (continued)
(c) Valuation changes on currency and interest rate derivatives, which are ineligible for hedge accounting, other than
those embedded in commercial contracts, and the currency revaluation of embedded US dollar derivatives contained in
contracts held by entities whose functional currency is not the US dollar.
(d) Valuation changes on commodity derivatives, including those embedded in commercial contracts, that are ineligible for
hedge accounting, but for which there will be an offsetting change in future Group earnings.
(e) A review of the infrastructure capacity requirements in Queensland, Australia, has confirmed that it is no longer
likely that Rio Tinto will utilise the Abbot Point Coal Terminal and associated rail infrastructure capacity contracted
under take or pay arrangements. Accordingly, an onerous contract provision has been recognised based on the net present
value of expected future cash flows discounted at a post-tax real rate of two per cent, resulting in a post-tax onerous
contract charge of US$496 million.
(f) Other credits and charges that individually or in aggregate, if of a similar type, are of a nature or size to require
exclusion in order to provide additional insight into business performance.
This information is provided by RNS
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