Bernstein Strategic Decisions conference
Jakob Stausholm, CFO
23 September 2020
Cautionary and supporting statements
This presentation has been prepared byRio Tinto plc and Rio Tinto Limited (together with their subsidiaries, " Rio Tinto"). By accessing/attending this presentation you acknowledge that you have read and understood the following statement.
Forward-looking statements
This document, including but not limited to all forward-looking figures, contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The words "intend",
"aim", "project", "anticipate", "estimate", "plan", "believes", "expects", "may", "would", "should", "could", "will", "target", "set to", "seek", "risk" or similar expressions, commonlyidentifysuch forward-looking statements.
Examples of forward-looking statements include, among other things, those regarding business strategy, plans and objectives of m anagement for future operations (including anystatements related to the ongoing impact of the COVID-19 pandemic), estimated ore reserves, anticipated production or construction dates, costs, outputs and produ ctive lives of assets or similar factors. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors set forth in this presentation which maycause the actual res ults, performance or achievements of Rio Tinto, or industryresults, to be materially different from any future results, performance or achievements expressed or implied bysuch forward -looking statements which speak onlyas to the date of this presentation. Such forward-looking statements are based on numerous assumptions regarding Rio Tinto's present and future business strategies and the environment in which Rio Tinto will operate in the future.
Important factors that could cause Rio Tinto's actual results, performance or achievements to differ materiallyfrom those in the forward-looking statements include levels of actual production during anyperiod, market prices, abilityto produce and transport products profitably, demand for our products, changes to the assumptions regarding the recoverable value of our tangible and intangible assets, the effect of foreign currency exchange rates on market prices and operating costs, operational problems, the actions of competitors, activities by governmental authorities, such as changes in taxation or regulation, political uncertainty and economic conditions in relevant areas of the world, the risks and uncertainties associated with the ongoing impacts of COVID-19 or other pandemic and other such risk factors identified in Rio Tinto's most recent Annual report and accounts in Australia and the United Kingdom and the most recent Annual report on Form 20 -F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6-Ks furnished to, or filed with, the SEC. The above list is not exhaustive.
Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placedon forward-looking statements, particularlyin light of the current economic climate and the significant volatility, uncertaintyand disruption caused bythe outbreak of COVID -19.
Except as required byapplicable regulations or law, Rio Tinto does not undertake anyobligation to publiclyupdate or revise any forward-looking statements, whether as a result of new information or future events. The Group cannot guarantee that its forward-looking statements will not differ materiallyfrom actual results. In this presentation all figures are US dollars unless stated otherwise.
Disclaimer
Neither this presentation, nor the question and answer session, nor anypart thereof, may be recorded, transcribed, distributed, published or reproduced in anyform, except as permitted byRio Tinto. By accessing/ attending this presentation, you agree with the foregoing and, upon request, you will promptlyreturn anyrecords or transcri pts at the presentation without retaining anycopies.
This presentation contains a number of non-IFRS financial measures. Rio Tinto management considers these to be key financial performance indicators of the business and theyare defined and/or reconciled in Rio
Tinto's annual results press release and/or Annual report.
Reference to consensus figures are not based on Rio Tinto's own opinions, estimates or forecasts and are compiled and publish ed without comment from, or endorsement or verification by, Rio Tinto. The
consensus figures do not necessarilyreflect guidance provided from time to time by Rio Tinto where given in relation to equi valent metrics, which to the extent available can be found on the Rio Tinto website.
By referencing consensus figures, Rio Tinto does not implythat it endorses, confirms or expresses a view on the consensus fi gures. The consensus figures are provided for informational purposes onlyand are not intended to, nor do they, constitute investment advice or any solicitation to buy, hold or sell securities or other financial instruments. No warrantyor representation, either express or implied, is made byRio Tinto or its affiliates, or their respective directors, officers and employees, in relation to the accuracy, completeness or achievabi lityof the consensus figures and, to the fullest extent permitted bylaw, no responsibilityor liabilityis accepted by any of those persons in respect of those matters. Rio Tinto assumes no obligation to update, revise or supplement the consensus figures to reflect circumstances existing after the date hereof.
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Improved conditions but wide range of potential outcomes ahead
High frequency data: a V-shaped recovery in China
Index: | % |
400 Start year = 100 | 90 |
300 | 80 |
200 | 70 |
100 | 60 |
0 | 50 |
Jan-20 | Feb-20Mar-20 | Apr-20May-20 | Jun-20 | Jul-20 | Aug-20 | |
Property sales | Passenger car sales | |||||
Heavy truck sales | Subway passenger | |||||
Rebar capacity utilization (RHS) | ||||||
High frequency data: US not yet back to pre-crisis levels | ||||||
150 | Index: | 15% | ||||
Start Year = 100 | % YoY | |||||
125 | 10% | |||||
100 | 5% | |||||
75 | 0% | |||||
50 | -5% | |||||
25 | -10% | |||||
0 | -15% |
Jan-20 | Feb-20 | Mar-20 | Apr-20 | May-20 | Jun-20 | Jul-20 | Aug-20 | Sep-20 | ||
US Power Demand | US Gasoline Implied Demand | |||||||||
US Steel Production | Weekly Economic Index (RHS) | |||||||||
Redbook retail Index (RHS) | ||||||||||
Source: Rio Tinto, Bloomberg, CEIC, Mysteel
3
Current state of play
- China: industrial sector growth now above pre- Covid-19 levels and plateauing
- Europe and US: rebound in economic activity continuing, but pace of recovery slowing
- Other regions: impacts varied, second wave lockdowns harmful, but less so when regionalised
Path forward
A wide variety of scenarios remain possible with outcomes driven by:
- Reactions to new cases resurgence
- Level of ongoing government support
- Vaccine timing
©2020, Rio Tinto, All Rights Reserved
A resilient performance in H1 2020
$9.6 billion
Underlying EBITDA
47% & 21%
Underlying EBITDAmargin & ROCE1
$2.8 billion
Free cash flow
$4.8 billion
Net debt
$3.8 billion
Paid to shareholders2
$2.7 billion
Corporate taxes paid
$1.2 billion
Royalties3
$2.7 billion
Capital invested
1 Return on Capital Employed (ROCE) is defined as annualised underlying earnings excluding net interest divided by average capital employed (operating assets before net debt) 2 $3.6 billion in ordinary dividends and $0.2 billion in share buy-backs3 Government and private royalty expenses in H1
4 | ©2020, Rio Tinto, All Rights Reserved |
Disciplined allocation of capital
1 Essentialsustaining capex
2 Ordinarydividends
3 Iterative cycle of
Further cash | Compelling |
returns to | |
growth | |
shareholders | |
Debt
management
5 | ©2020, Rio Tinto, All Rights Reserved |
Continue to invest $20bn over three years
Capital expenditure profile
$ billion
~7.0 ~7.0
Depreciation | ~6.0 | |
5.4 | 5.5 | ||||||
4.5 | |||||||
2.4 2.4 2.7 1.8
2017A | 2018A | 2019A | 2020F | 2021F | 2022F |
Sustaining | Pilbara replacement | ||||
Other replacement | Development | ||||
H1 total capex | October 2019 guidance | ||||
Controlled ramp-up of investments continues.
H1 2020 capex of $2.7 billion
- Sustaining capex of $1.2 billion
- Development and replacement capex of $1.5 billion
Capital portion of $1 billion climate-related spend included. Climate spend extends beyond capex guidance period
Sustaining capex of up to $3 billion per year, of which Pilbara Iron Ore is $1.0-1.5 billion per year
Pilbara replacement includes Koodaideri, Robe River and Western Turner Syncline phase 2 mine developments from 2019
6 | ©2020, Rio Tinto, All Rights Reserved |
Maintained our balance sheet strength
Net debt
$ billion
14.1
12.9 11.3
10.0 | 9.3 | 9.3 | |||||||||||||||||||||||||||
9.6 | 8.0 | ||||||||||||||||||||||||||||
5.6 | |||||||||||||||||||||||||||||
7.6 | 4.9 | 4.8 | |||||||||||||||||||||||||||
5.2 | 4.9 | 4.8 | |||||||||||||||||||||||||||
3.8 | 3.7 | ||||||||||||||||||||||||||||
-0.3 | |||||||||||||||||||||||||||||
Jun-16 | Dec-16 | Jun-17 | Dec-17 | Jun-18 | Dec-18 | Jun-19 | Dec-19 | Jun-20 | |||||||||||||||||||||
pro forma net debt* | Reported net debt | ||||||||||||||||||||||||||||
Balance sheet strength is an asset. Offers resilience and creates optionality
Gearing 10% and net debt to LTM^ EBITDA of 0.23
Operating cash flow of $5.6 billion following $1 billion of taxes paid in June 2020 relating to 2019 profits
Fully absorbed the 2019 final dividend of $3.6 billion and share buy-back of $0.2 billion
- Pro-formanet debt adjusts for the remainder of previously announced buy-backs from operations, lags in shareholder returns from disposal proceeds, Australian tax lag and disposal-related tax lag and the impact of IFRS 16 Leases accounting change for the prior periods. This lease accounting change is reflected in the Ju ne and December 2019 reported net debt ^LTM = Last Twelve Months
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Shareholder returns based on a well defined pay-out policy
Shareholder returns of 40-60% of underlying earnings on average through the cycle
160%
140%
120%
100%
80% | ||
60% | 53% | |
40%
20%
0%
2016 | 2017 | 2018 | 2019 | H1 2020 | 2016-2019 |
$2.5 billion ordinary interim dividend, $1.55 per share, up 3% year-on-year
53% pay-out ratio
Primary decision taken by Board for final dividend
Total pay-out has consistently exceeded the policy in the last four years
Ordinary dividend | Additional return | Return of disposal proceeds | Interim ordinary dividend | ||
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Our climate targets
$1 billion
46% reduction in absolute emissionsfrom managed operations since2008
30%
reduction in Scope 1 and
2 emissions intensity by 2030
estimated spend on climate-related projects over five years
15% | Net zero |
reduction in | ambition for our |
Scope 1 and 2 | operations by |
emissions by | 2050 |
2030 | |
(18% excl. divestments)
ELYSISTM
Developing direct GHG-free aluminium smelting
9 | ©2020, Rio Tinto, All Rights Reserved |
Our investment case in action
Our assets | Our approach | Our performance in H1 2020 | ||
Long life | Sustainability (ESG) | $4.8 billion underlying earnings | ||
Competitive | Operational Excellence | $2.7 billion of profit taxes paid | ||
Expandable | + | Value over volume | = | |
$1.2 billion royalty expenses1 | ||||
Sustainable | Capital discipline | $2.7 billion invested in capital projects | ||
Strong balance sheet | Counter-cyclical | $3.8 billion dividends and share buy-backs2 |
Unique strength and resilience
1 Government and private royalty expenses 2 Cash returns (dividends and share buy-backs) are stated on a cash flow basis
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Rio Tinto plc published this content on 23 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 September 2020 10:49:05 UTC