REG - Rio Tinto - Rio Tinto 2017 annual results <Origin Href="QuoteRef">RIO.L</Origin> - Part 4

Rio TintoAnnouncement

07/02/2018 07:05

- Part 4: For the preceding part double click  ID:nRSG1467Ec 

                                                                                                               US$m             US$m     US$m     
 Impairment charges (a)                                                                                (796)        141       174              (481)    (183)    
 Net gains on disposal  of interests in businesses (b)                                                 2,344        (322)     -                2,022    382      
 Exchange and derivative (losses)/gains:                                                                                                                         
 -   Exchange (losses)/gains on US dollar net debt and intragroup balances (c)                         (613)        113       12               (488)    516      
 -   Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting (d)  33           (5)       2                30       (12)     
 -   (Losses)/gains on embedded commodity derivatives not qualifying for hedge accounting (e)          (498)        146       -                (352)    32       
 Changes in corporate tax rates in the US and France (f)                                               -            (439)     -                (439)    -        
 Onerous port and rail contracts (g)                                                                   -            -         -                -        (329)    
 Restructuring costs including global headcount reductions                                             -            -         -                -        (177)    
 Increased closure provisions for non-operating and legacy operations (h)                              -            -         -                -        (282)    
 Rio Tinto Kennecott insurance settlement(i)                                                           73           (28)      -                45       -        
 Tax provision (j)                                                                                     -            -         -                -        (380)    
 Adjustment to deferred tax assets relating to expected divestments (k)                                -            (202)     -                (202)    -        
 Other exclusions (l)                                                                                  -            -         -                -        (50)     
 Total excluded from underlying earnings                                                               543          (596)     188              135      (483)    
 Net earnings                                                                                          12,816       (3,965)   (89)             8,762    4,617    
 Underlying earnings                                                                                   12,273       (3,369)   (277)            8,627    5,100    
                                                                                                                                                                 
 
 
Underlying earnings are reported by Rio Tinto to provide greater understanding of the underlying business performance of
its operations. Underlying earnings and net earnings 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 (l) below are excluded from net earnings in arriving at underlying earnings. 
 
(a)      An impairment indicator was identified at the Rössing Uranium cash-generating unit as a result of structural
changes in the forecast prices for uranium due to oversupply in the market.  In assessing the recoverable amount of the
assets, it was determined that the property, plant and equipment and certain other non-current assets were fully impaired
resulting in a pre-tax impairment charge of US$267 million. 
 
In 2016, 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
recoverable amount for Argyle was determined to be US$191 million, resulting in a pre-tax impairment charge of US$241
million to property, plant and equipment and intangible assets. 
 
In 2017, an impairment trigger assessment at the Argyle cash-generating unit resulted in the identification of impairment
indicators because of lower production volumes compared with forecast, a smaller than expected contribution from
productivity improvements and lower realised prices.  In assessing the recoverable amount of the assets, it was determined
that the property, plant and equipment, including an updated closure asset, was fully impaired resulting in a pre-tax
impairment charge of US$172 million.  The impairment charge resulted in the recognition of deferred tax assets of US$34
million; these will be recovered by other business units in the same tax group. 
 
Reconciliation of net earnings to underlying earnings (continued) 
 
Following a reassessment of planned exploration spend in the six months ended 30 June 2017, substantive expenditure to
evaluate the Roughrider deposit in Canada is neither budgeted nor planned.  These circumstances were identified as an
impairment indicator under IFRS 6 and the recoverable amount for the evaluation and exploration assets was determined to be
US$nil due to the significant uncertainty over whether commercially viable quantities of mineral resources could be
identified at a future date.  Accordingly an impairment charge of US$357 million was recorded in 2017 to fully write-off
the mineral interests recognised on acquisition. 
 
In 2015, the impairment charge for Simandou included an amount relating to the anticipated settlement of contractual
liabilities. These liabilities were settled during 2017 by the Group's subsidiary Simfer Jersey Ltd. from the proceeds of a
share issue. The non-controlling interest component of this transaction (US$91 million) has been accounted for as an
impairment reversal consistent with the original accounting treatment. 
 
(b)                                                                                                                        
                                                          On 1 September 2017 a pre-tax gain of US$2,367 million (US$2,044
million after tax) was recognised on the sale of Coal & Allied Industries Limited.  This was partially offset by net losses
on a number of smaller disposals. 
 
In 2016 the net gains on disposal and consolidation of interests in businesses related mainly to the sale of Rio Tinto's 40
per cent interest in the Bengalla joint venture and the sale of the Lochaber assets.  This was partially offset by a loss
on disposal of the interest in Carbone Savoie. 
 
(c)      Exchange (losses)/gains on external US dollar net debt and intragroup balances comprise of post-tax foreign
exchange gains on US dollar denominated net debt in non-US dollar functional currency companies of US$420 million and
post-tax losses of US$908 million on intragroup balances. 
 
Net exchange gains in 2016 comprise post-tax foreign exchange gains of US$123 million on external US dollar denominated net
debt, and US$393 million gains on intragroup balances, mainly as the Canadian dollar strengthened against the US dollar. 
 
(d)      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. 
 
(e)      Valuation changes on commodity derivatives embedded in commercial contracts and other financial commodity
derivatives, that are ineligible for hedge accounting, but for which there will be an offsetting change in future Group
earnings. 
 
(f)                                                                                                                        
                                                    Deferred tax assets have been re-measured to reflect lower corporate
income tax rates in the US and France as a result of tax legislation changes substantively enacted in December 2017. 
 
(g)      During 2016 a review of the infrastructure capacity requirements in Queensland, Australia, confirmed that it was
no longer likely that Rio Tinto would utilise the Abbot Point Coal Terminal and associated rail infrastructure capacity
contracted under take or pay arrangements and agreement was reached with Adani, the owner of the port, to relinquish that
capacity.  Accordingly, an onerous contract provision was recognised resulting in a post-tax onerous contract charge of
US$329 million. 
 
(h)                                                                                                                        
                                                            In 2016 the closure provision for non-operating and legacy
operations increased due to the Gove alumina refinery in Northern Territory, Australia where operations have been curtailed
since May 2014.  The provision was updated based on the cost estimates from the studies. 
 
Future revisions to the closure cost estimate during the study periods (including the next stage of feasibility study) will
continue to be excluded from underlying earnings as the site operating assets have been fully impaired. 
 
(i)       During 2017, Rio Tinto received the final settlement on the insurance claims related to the 2013 slide at Rio
Tinto Kennecott's Bingham Canyon mine. The amounts excluded from underlying earnings are consistent with the previously
excluded losses to which they relate, in line with the treatment of the 2013 and 2015 settlement payments. 
 
Reconciliation of net earnings to underlying earnings (continued) 
 
(j)       Tax provision includes amounts provided for specific tax matters for which the timing of resolution and potential
economic outflow are uncertain. During 2016 provision was made in relation to matters under discussion with the Australian
Taxation Office (ATO) in relation to the transfer pricing of certain transactions between Rio Tinto entities based in
Australia and the Group's commercial centre in Singapore for the period since 2009. 
 
(k)      Deferred tax assets have been derecognised as a result of revised profit forecasts in France due to expected
divestments. 
 
(l)       Other credits and charges that, individually, or in aggregate, if of similar type, are of a nature or size to
require exclusion in order to provide additional insight into underlying business performance. 
 
(m)     Exclusions from underlying earnings relating to equity accounted units are stated after tax and are included in the
column "Pre-tax". 
 
Availability of this report 
 
This report is available on the Rio Tinto website (www.riotinto.com). 
 
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