Rio Tinto : RT Annual results script

Full-year 2021 results - Script
23 February 2022	Page 1 of 16

Slide 1: Cover slide

Good evening and good morning everybody. Welcome to Rio Tinto's 2021 results presentation and thank you for joining us.

Today's presentation is virtual but we hope to see many of you face to face in the next few days.

Our Chief Executive, Jakob Stausholm and Chief Financial Officer, Peter Cunningham will go through a presentation which will be followed by a Q&A session.

Slide 2: Cautionary and supporting statements

I would like to draw your attention to the cautionary statement, which contains important information on the basis on which this presentation has been prepared.

Now, let me hand over to Jakob and Peter.

Slide 3: Jakob title slide

Thank you Menno. Good morning and good evening from Sydney.

I would like to acknowledge the Gadigal people of the Eora Nation as the Traditional Custodians and pay my respects to Elders past, present and emerging. I extend that respect to all Aboriginal and Torres Strait Islander peoples.

Slide 4: Delivering on our objectives in order to grow, decarbonise and deliver attractive shareholder returns

When I presented my first results as Chief Executive last February, I set out four key objectives to make Rio Tinto an even stronger company.

• To become the best operator
• To strive for impeccable ESG credentials
• To excel in development; and
• To strengthen our social licence.

This is what we have done and I'm proud to say we have made progress against each objective.

In October we launched a new strategy, including more ambitious climate targets. We also set out how Rio will:

• Grow in commodities that facilitate and benefit from the energy transition
• Decarbonise our assets and value chain; and
• Maintain our tight capital allocation enabling us to pay attractive dividends.

Full-year 2021 results - Script
23 February 2022	Page 2 of 16

Achieving our objectives and delivering the strategy are entirely aligned.

We are all focussed on execution but as I have stated before it is a multi year journey. However, even after 12 months and only four months after our Capital Markets Day there is tangible progress.

Slide 5: Record full year results and new direction

Today's results highlight the underlying strength of our business.

We achieved a third consecutive year of zero fatalities, which we have never achieved before

We realise this record disappears the moment we let down our guard. Having our people return home safely, each day, remains our first priority and we continue to focus on this.

I'd like to take this opportunity to sincerely thank our people for their commitment, resilience and sacrifice during another COVID constrained year. They have done a superb job, I am very proud.

Turning to our financials.

Our results were very strong. They demonstrate both the quality of our assets and the strength of our business model.

We are 'firing on all cylinders' in terms of our financial performance,

Each of our four product groups were highly profitable, achieved significant EBITDA growth and double digit return on capital employed, and delivered strong free cash flow.

Our iron ore business continues to be the primary contributor, but we also benefited from an increased contribution from the other three product groups. Not least Aluminium that recorded 20% Return On Capital Employed in the second half of 2021 up from just 3% during 2020.

In aggregate we achieved the strongest financials in our history with EBITDA of $38 billion and net earnings of $21 billion.

A highlight for me comes when you compare today's results with our performance during a similar period of strong demand and high commodity prices a decade ago. In 2021 we converted a far higher proportion of strong commodity prices into earnings. And subsequently because of our strict capital allocation we converted the earnings into far higher free cash flow. This enabled us to declare record dividends of $16.8 billion, a 79 per cent pay-out ratio.

Full-year 2021 results - Script
23 February 2022	Page 3 of 16

This performance reflects our tight cost control, disciplined capital allocation and the fact that our balance sheet is the strongest it has been for at least 15 years.

In the past year, we have made important and significant shifts in how we engage, how we see ourselves and what really matters to us. We have become more humble and better listeners. Both internally and externally… as we extract the full learnings from Juukan Gorge.

Developing relationships which go beyond just agreements and that can deliver mutual prosperity.

What Bold and the team achieved in Mongolia is a perfect example of what can be mutually achieved. Combining our operating and development know-how with genuine relationships, unlocks valuable opportunities.

Looking ahead, we see a positive outlook for all our commodities.

This is driven by the global energy transition, which is creating new demand for our products, and near term Chinese policies that are becoming more growth focused.

While the current global macro-economic environment is strong, there are significant geopolitical and economic uncertainties. For example surrounding Ukraine.

Rio Tinto has demonstrated that we are able to continue to perform in uncertain times due to our very robust assets. That is why we remain highly competitive when demand and prices are low and benefit in full in periods of tight supply and demand balances.

Slide 6: Evolving our culture

When I became Chief Executive I also committed to improve our culture. This goes well beyond operational safety.

It is about how we care for our people. How we become a less hierarchical and more humane organisation and how we unleash the potential of each individual.

We are not wasting time and have introduced measures and frameworks to strengthen the business and empower our people. We have rolled out our new values of Care, Courage and Curiosity. And we are investing in our people.

Through the Rio Tinto Safe Production System, we will empower our people to achieve consistent operational excellence and unlock real and sustainable improvements.

Full-year 2021 results - Script
23 February 2022	Page 4 of 16

In March last year, we commissioned Liz Broderick to conduct a thorough review of our culture.

The findings of her comprehensive report are very disturbing and confronting.

But in order to improve we had to identify the extent of our problems. We will implement the report's recommendations in full, building on the changes already put in place to make Rio a safer, more inclusive and more respectful place to work.

At the heart of all our efforts, from changing our culture to operational excellence, is trusting and respecting our employees, becoming less hierarchical and empowering people.

To make a real difference across the business, we are driving outcomes, not just setting targets. This applies across all four objectives.

However, let me now hand over to Peter, who will examine our strong set of financials in detail.

Slide 7: Peter title slide

Thank you, Jakob. Good morning and good evening everyone.

Let's start by taking a look at the numbers.

Slide 8: Record financial results

We've announced a record set of results following strong global demand for all our major commodities.

The 42% increase in revenue was driven by price, in particular iron ore. Aluminium and copper were also significant contributors.

Importantly, we maintained our financial discipline throughout 2021, achieving underlying EBITDA of $37.7 billion and operating cash flow of $25.3 billion after record taxes and royalties of $13 billion.

Free cash flow of $17.7 billion was after $7.4 billion of capital expenditure and a $1.1 billion temporary working capital outflow, reflecting increased China portside trading inventories and supply chain disruptions.

Underlying earnings rose to $21.4 billion which lifted our return on capital to 44%. This enabled us to declare total dividends of $16.8 billion for the full year.

Net earnings was also a record although we did have some exceptional items, notably the $500 million increase in the closure provision for ERA, where we have taken the mid-point of ERA's guidance, recognising 100% of the increase.

Full-year 2021 results - Script
23 February 2022	Page 5 of 16

Let's now take a look at our key markets.

Slide 9: Robust demand drives commodity prices

Iron ore prices rose to record highs with China importing well above one billion tonnes and consumption in the rest of the world largely recovering to pre-COVID levels.

The steel intensity of the recovery lifted global crude steel production by almost 100Mt to a record of almost two billion tonnes.

Global scrap generation also improved, but high-cost iron ore supply was required to balance the market. This did taper off in the second half as prices declined.

Aluminium and copper prices rallied to multi-year highs on firm recovery in global demand and supply challenges. Looking forward, we're encouraged to see continued momentum in our markets but fully alert to potential disruption from new COVID variants and geopolitical tensions.

Let's now take a closer look at the drivers.

Slide 10: Strong conversion of price into earnings…

Unsurprisingly, commodity prices were by far the biggest movement, boosting EBITDA by $17.5 billion in aggregate.

In past cycles, higher prices have given rise to significantly higher costs, often wiping out up to a third of the price gains and resulting in painful adjustments later on. This year, the cost variance was more modest, reflecting our intense focus on cost control throughout the cycle, with the $1.1 billion impact mainly due to fixed cost inefficiencies from lower volumes.

This meant that we converted most of the price benefit into higher EBITDA.

Slide 11: …and strong conversion of earnings into cash flows

Our cash conversion was also strong, with record operating and free cash flow and continued focus on capital discipline, which has not been the case in previous cycles.

However, we are not satisfied with our operational performance and recognise that it will take time to turn it round - a multi-year journey, in fact.

Slide 12: Iron ore: Strong financial result despite challenging conditions

Let's look at each division, starting with Iron Ore.

The team did a great job keeping the assets running and delivered record underlying EBITDA of $28 billion and a 76% margin.