Rio Tinto 2017 Annual Report

by pmnationtalk on March 8, 2018284 Views


Dear shareholders,

In 2017, your company delivered a strong nancial performance and signi cant cash returns to shareholders. These results were achieved through a focused strategy, disciplined capital allocation and the commitment of our employees around the world.

The cyclical nature of our industry is readily apparent. Just over two years ago, the prices for many commodities were at near decade lows. In 2017, prices for a number of our key products were higher than in 2016. This, combined with our strong cash and productivity focus, helped underpin Rio Tinto’s underlying earnings and cash generation.

Underlying earnings in 2017 were US$8.6 billion, up 69 per cent on 2016. Net earnings were US$8.8 billion (2016: US$4.6 billion) and operating cash ˆow was US$13.9 billion (2016: US$8.5 billion).

Rio Tinto continued to realise considerable savings from its cost reduction programme, delivering US$0.6 billion of pre-tax improvements and reductions in 2017 and meeting its US$2.0 billion target for 2016 and 2017 six months earlier than scheduled.

The company ended the year with a strengthened balance sheet, with net debt reduced to US$3.8 billion.

Record shareholder returns

Rio Tinto declared cash returns to shareholders of US$9.7 billion for 2017, including record dividends.

We announced a nal dividend of 180 US cents per share, equivalent to US$3.2 billion, bringing the full year 2017 ordinary dividend to 290 US cents per share, equivalent to US$5.2 billion. The nal dividend is the largest in your company’s 145-year history.

For 2017, we announced buy-backs of US$2.0 billion, the  first US$1.0 billion having been announced in August 2017 and completed in December 2017, and the second US$1.0 billion announced with our full year results in February 2018 and to be completed by the end of 2018.

supplementary share buy-back of US$2.5 billion from the Coal & Allied sale proceeds was announced in September 2017.

Supporting our communities

Our shareholder returns are signi cant, and so is the economic and social contribution we make in the countries in which we operate.

In 2017, more than a third of Rio Tinto’s direct economic contribution was through payments to suppliers – businesses large and small – for their goods and services.

Our contribution is not monetary alone; it is also shared through generations in education, skills development and community development.

In this report, and through our Sustainable development report, you will nd examples of our work in action; be it delivering on our strong commitment to environmental management, building our relationship with governments and civil society, or building our community links through local procurement partnerships.

Rio Tinto seeks to act in ways that strengthen transparency, understanding and trust with all of its stakeholders and through pioneering publications, such as our Taxes paid report, we have sought to build awareness and understanding of the signi cant economic contribution we make.

Board composition

In 2017, your directors visited Rio Tinto’s iron ore operations in the Pilbara region of Western Australia, aluminium assets in the Saguenay–Lac-Saint-Jean region of Quebec, Canada, as well as our global commercial centre in Singapore.

Such visits allow us to meet with employees and host governments to gain a greater understanding of our people and operations’ local contribution.

Board renewal was a feature of the past year. We said thank you and farewell to non-executive directors Robert Brown, Anne Lauvergeon and John Varley, and welcomed David Constable, Sam Laidlaw and Simon Henry to the board as non-executive directors.

On 15 February 2018, we also announced that, after more than ten years of service, Paul Tellier will be retiring from the board in early May 2018, as well as the appointment of Moya Greene as a new non-executive director. Moya will join the board in the second half of 2018.

On 5 March 2018, Simon Thompson will succeed me as chairman of Rio Tinto. Simon has served on the board since 2014 and has signi cant experience of the industry, having led various extractive businesses in multiple geographies. I am pleased to be succeeded by Simon and know that he will do an outstanding job chairing your company.

Personal re•ections

I would like to thank the board of directors and you, our shareholders, for the opportunity to serve this company for the past nine years as chairman. It has been a privilege to work with many outstanding people across the organisation and to have learnt so much about an exciting industry that continues to provide the materials that are essential for modern life.

There is no doubt it has been both challenging and rewarding to chair a business that is so cyclical in nature. The industry’s move, some years ago, to sell iron ore by reference to spot prices rather than annually xed prices, further introduced unprecedented levels of short-term volatility in an already cyclical industry.

The investment in 2011 of US$4 billion in Mozambique in what ultimately turned out to be inferior quality coal assets was undoubtedly a low point during my tenure. It was also a dif cult moment for the board when we took the decision to notify the relevant authorities about contractual payments made in 2011 to a consultant providing advisory services on the Simandou project in Guinea.

Along with the obvious challenges, there have also been many highlights. Nine years ago, Rio Tinto had net debt of almost US$40 billion; net debt is now less than US$4 billion.

Shareholders contributed US$15 billion of much needed capital by way of a rights issue three months into my chairmanship. However, since the start of 2011, and including the US$6 billion that will be paid to shareholders during 2018, we will have returned in excess of US$40 billion in the form of dividends and share buy-backs.

In terms of share price performance and total shareholder return, over the last nine years we have outperformed the sector by a considerable margin.

Rio Tinto today has arguably the strongest balance sheet in the sector. Taken together with the quality of our assets, I therefore have every con dence that, under the leadership of our chief executive J-S Jacques, Rio Tinto has a bright future.

Our people

Clearly, none of our achievements would have been possible without the incredible dedication and hard work of thousands of employees worldwide. My nal thanks must therefore go to our people, many of whom I have met on my many visits to of ces and operating sites. Without them Rio Tinto would simply not be the great company that it is. I wish them well.

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