Rio Tinto annual results 2003
Rio Tinto PLC
02 February 2004
Rio Tinto well positioned after a challenging year
• Adjusted earnings* of $1,382 million were $148 million below 2002.
Net earnings were $1,508 million compared with $651 million in 2002. Cash flow
from operations of $3,486 million remained strong and was only seven per cent
below 2002's record levels.
• The final dividend brings this year's total payout to US 64.0 cents
per share, an increase of seven per cent.
• 2003 was a year of unprecedented volatility in the commodity and
currency markets. The US dollar weakened by over 30 per cent against the
Australian dollar. Non-ferrous metal prices only improved markedly in the
second half of the year.
• Chinese demand for most commodities continued to grow resulting in
strong iron ore, alumina, coking coal and copper concentrate markets.
• Some other markets were weak, notably Asian thermal coal and titanium
dioxide feedstocks.
• There were two operational events in the period which significantly
reduced earnings: the failure of the acid plant at Kennecott Utah Copper in the
first half and the slippage of material at the Grasberg copper mine in late
2003.
• New mines at Diavik (diamonds) and Hail Creek (coking coal) were
commissioned and are ramping up to full production. Diamonds are now a major
product for Rio Tinto. The expansion of the Group's alumina capacity remains on
track for commissioning in late 2004.
• Investment of over $1 billion in the Group's iron ore assets was
approved in late 2003 in response to strong projected demand, especially from
China.
• The Group entered 2004 well positioned for the future.
Full year to 31 December 2003 2002 Change
(All dollars are US$ unless otherwise stated)
Gross turnover $11,755m $10,828m +9%
Cash flow from operations (incl. associate and JV dividends) $3,486m $3,743m -7%
Adjusted earnings* $1,382m $1,530m -10%
Net earnings (after exceptional items)* $1,508m $651m +132%
Adjusted earnings per share - US cents 100.3 111.2 -10%
Earnings per share - US cents 109.5 47.3 +132%
Dividends per share - US cents 64.0 60.0 +7%
*2003 full year net earnings are stated after exceptional gains of $126 million
on the disposal of Kaltim Prima and Peak/Alumbrera. 2002 net earnings were
stated after exceptional charges of $763 million relating to asset write downs
and $116 million relating to environmental remediation works at Kennecott Utah
Copper. Adjusted earnings and adjusted earnings per share exclude exceptional
items of such magnitude that their exclusion is necessary in order that adjusted
earnings fulfil their purpose of reflecting the underlying performance of the
business.
Chairman's comments
Rio Tinto's chairman Paul Skinner said, '2003 was a challenging year. While
demand for our products in China grew rapidly and many commodity prices rose
progressively over the year, these positive factors were offset by the continued
decline in the US dollar. We also faced a number of operational problems which
adversely affected production, costs and earnings.
'The strengths of Rio Tinto are the resilience of its cash flows and its total
commitment to long term value creation. Although adjusted earnings of $1,382
million were ten per cent lower than the level achieved in the previous year,
cash from operations was down only seven per cent and our net debt fell despite
a relatively heavy investment programme. It is this strength of cashflow that
gives us the flexibility to invest in opportunities whenever and wherever we
find them and it has also enabled the Board to declare a final dividend of US 34
cents per share, bringing the full year increase to seven per cent.
'As we enter 2004 we see stronger markets and improved prices for key products.
We will also gain from new production capacity in iron ore, coking coal,
diamonds and later alumina. Rio Tinto is well positioned to benefit from
continuing improvement in the global economy. While the level of the US dollar
remains a key uncertainty, our increased investment programme reflects this
confidence.'
Chief Executive's comments
Leigh Clifford, Rio Tinto's chief executive said, 'This has been a tough year
for a number of our operations. Our seaborne thermal coal and titanium dioxide
businesses have had to contend with both soft markets and a weaker US dollar.
'China's need for increasing amounts of raw materials continues. In iron ore,
the challenge has been to meet demand in what has been one of the tightest
markets ever. Whilst positive for both earnings and cash flow, meeting this
demand resulted in some inefficiencies which impacted our costs. China will
continue to play a key role in the evolution of the minerals industry and our
long life assets have the scope for expansion.
'We continue to focus on cost improvement. Building on the successful sharing
of the rail infrastructure, Hamersley and Robe have reached agreement for
similar co operative arrangements covering port, equipment and other services.
We have brought our Australian coal businesses under a common management
structure which will significantly reduce their administration costs. Our US
coal business is implementing a management system similar to the 'one mine'
initiative introduced at Hamersley a number of years ago. We have also made
excellent progress on implementing more flexible working arrangements at
Kennecott Utah Copper following the new labour contract agreed earlier in the
year.
'We have high quality projects under construction across a range of commodities
and we recently announced expansions of the Dampier port and the mines at
Yandicoogina and West Angelas. By the end of 2005, we will have the capacity to
ship over 170 million tonnes of iron ore per year from the Pilbara, an increase
of some 35 per cent, and dependent on demand have options for further expansion.
Demand for coking coal is enabling the Hail Creek coking coal mine to move
quickly towards full capacity and the new diamond mine at Diavik has exceeded
our feasibility study expectations. The first stage of the Comalco alumina
refinery, which is now largely underpinned by contracted sales, remains on track
for first shipments in early 2005.'
Webcast
A live webcast of the results presentation starting at 10-00 GMT (21-00
Australian Eastern Daylight Time) on 2 February 2004 can be accessed through the
Rio Tinto website (www.riotinto.com). A recording of the presentation will be
available on the Rio Tinto website soon after.
Commentary on the Group financial results
Adjusted earnings of $1,382 million were $148 million below the corresponding
period of last year. The principal factors are shown in the table below.
Adjusted earnings US$m
2002 1,530
Prices 442
Exchange rates (412)
Inflation (106)
Volumes 38
Energy costs (54)
Other costs (82)
Other 26
2003 1,382
Adjusted earnings exclude the exceptional items which are described below.
Exchange and prices
The weakening of the US dollar against the currencies in which most of the
Group's costs are denominated reduced earnings by $412 million. The Australian
dollar, Canadian dollar and South African rand were respectively 20 per cent, 11
per cent and 39 per cent stronger in 2003 than in 2002. The effect of these and
other currency movements on operating costs was to reduce earnings by $352
million. The effect of the shift in exchange rates on balance sheet values
further reduced earnings and this charge was $100 million more than the
corresponding charge in 2002. Gains on currency hedges initiated by North,
Ashton and Comalco before their acquisition in 2000 increased earnings by $40
million relative to 2002.
The prices of many products were stronger. Copper prices averaged 13 per cent
higher; gold 17 per cent and aluminium seven per cent. The copper price was 51
per cent higher at the end of the year than at the beginning and this lead to a
favourable effect from provisional pricing of $39 million. Benchmark iron ore
prices increased by nine per cent.
Over the full year, seaborne thermal coal prices were on average seven per cent
lower and realised uranium prices were lower due to some higher priced contracts
expiring at Rossing.
Volumes
Lower gold and molybdenum volumes at Kennecott Utah Copper as a result of
reduced by-product grades, partially offset volume growth from new mines at
Diavik (diamonds) and West Angelas (iron ore) and capacity expansions at
Escondida (copper) and Hamersley (iron ore). The benefit of higher gold grades
at Freeport, particularly in the first half of the year, was negated by lower
production following a slippage of material in the fourth quarter of the year.
Robust demand for diamonds enabled Argyle to make sales from inventory. Volumes
of titanium dioxide feedstock were affected by weak markets.
Costs
Higher oil, power and gas prices reduced earnings by $54 million. Average oil
prices were $3.50 per barrel or 14 per cent higher than in 2002. Gas prices in
the US market were also higher and there were also increases in electricity
prices, principally in New Zealand.
Excluding the effects of energy prices and inflation, costs increased by $82
million. Two significant events adversely affected cost performance in the
period. In the first half of the year there was a three week smelter shut down
at Kennecott Utah Copper as the result of the acid plant failure. The material
slippage in the fourth quarter impacted both production volumes and costs at the
Grasberg mine.
Costs at Coal & Allied were affected by higher demurrage caused by a shortage of
rail capacity in the Hunter Valley. Costs at Rio Tinto Iron & Titanium
reflected the combined impact of the absence of a one-off benefit in 2002 and a
charge associated with the partial write down of a customer receivable in 2003.
Tax
Excluding exceptional items, the effective tax rate at 29 per cent compares with
31 per cent for 2002. The lower charge in 2003 reflects reduced tax payments in
the US and a number of one off benefits including one of $8 million as a result
of the proposed entry into the Australian tax consolidation regime, with effect
from 1 January 2003.
Other
The Group continues to benefit from low interest rates thanks to its policy of
having predominantly floating rate debt. The after tax net interest charge was
$36 million less than in 2002 due both to lower interest paid and higher
capitalised interest reflecting increased assets under construction. The net
central cost of the Group's pension schemes was about $60 million higher than in
2002.
The sale of the Fortaleza nickel mine was completed on 16 January 2004 and the
profit on sale will, therefore, be taken up in 2004. However, the net earnings
of Rio Tinto Brasil include a credit of $32 million resulting from the reversal
of part of an impairment provision recorded in a previous year.
Exceptional items
The 2003 exceptional items of $126 million relate to gains on the disposal of
Kaltim Prima Coal and Peak/Alumbrera. The $19 million gain on disposal of Peak/
Alumbrera was reported as part of first half net earnings. No tax was payable
on these gains.
Exceptional charges in 2002 of $879 million comprised provisions for the write
down of asset carrying values of $763 million and a charge relating to
environmental remediation works at Kennecott Utah Copper of $116 million. Tax
relief of $42 million arose on these items.
Second half adjusted earnings
In the second half of the year, adjusted earnings were $100 million higher than
in the first half largely as a result of higher selling prices, particularly for
copper, iron ore, gold and aluminium. This was partly offset by further
weakening of the US dollar. The pick up of titanium dioxide sales in the second
half did not materialise to the extent that would normally be expected.
Cash flow
The Group's operating cash flow remained strong. Total cash flow from
operations of $3,486 million, including dividends from associates and joint
ventures, was only seven per cent below 2002 despite 10 per cent lower adjusted
earnings.
Tax paid includes a payment of $106 million relating to the disputed tax
assessment from the Australian Tax Office described in note 29 of the 2002
financial statements. The amount paid has been recorded as a receivable in
these accounts because the directors believe that the relevant tax assessments
are not sustainable.
Investment in the business continued. Capital expenditure and financial
investment of $1,673 million was $197 million less than 2002. Purchases of
plant and equipment included the expansion of iron ore capacity and the
construction of the Comalco alumina refinery. Purchases less sales of
investments in 2002 of $323 million mainly related to US treasury bonds held as
security for the deferred consideration on the North Jacob's Ranch acquisition
of which $76 million were sold in 2003.
Rio Tinto continues to explore opportunities to dispose of non-core assets but
only when such disposals are value creating. The sale of assets, principally
Peak/Alumbrera and Kaltim Prima Coal generated a cash inflow of $405 million.
Balance sheet
Shareholders' funds increased by $2,575 million to $10,037 million due to
profits exceeding dividends by $626 million and an increase due to exchange rate
movements of $1,924 million. The most significant of these was the
strengthening of the Australian dollar by 31 per cent against the US dollar.
Net debt reduced by $101 million to $5,646 million. The ratio of net debt to
total capital improved from 41 per cent, at 31 December 2002, to 34 per cent at
31 December 2003. The balance sheet remains strong. Interest was covered 11
times.
Dividends
Dividends are determined in US dollars. Rio Tinto plc dividends are declared
and paid in pounds sterling and Rio Tinto Limited dividends are declared and
paid in Australian dollars, converted at exchange rates applicable on Friday 30
January 2004. The interim and final dividends are summarised below.
2003 2002
Rio Tinto Group
Interim (US cents) 30.00 29.50
Final (US cents) 34.00 30.50
Total dividend (US cents) 64.00 60.00
Rio Tinto plc
Interim (pence) 18.45 18.87
Final (pence) 18.68 18.60
Total dividends (pence) 37.13 37.47
Rio Tinto Limited
Interim (Australian cents) 45.02 54.06
Final (Australian cents) 44.68 51.87
Total dividends (Australian cents) 89.70 105.93
Rio Tinto Limited shareholders will be paid dividends which will be fully
franked. The directors consider that there are sufficient franking credits
available for paying fully franked dividends for at least the next year.
The respective dividends will be paid on Tuesday 6 April 2004 to Rio Tinto plc
shareholders on the register at the close of business on Friday 12 March 2004
and to Rio Tinto Limited shareholders on the register at the close of business
on Tuesday 16 March 2004. The ex- dividend date for both Rio Tinto plc and Rio
Tinto Limited will be Wednesday 10 March 2004. Dividends will be paid to Rio
Tinto ADR holders on Wednesday 7 April 2004.
As usual, Rio Tinto will operate its Dividend Reinvestment Plan, details of
which can be obtained from the Company Secretaries' offices and from the Rio
Tinto website (www.riotinto.com). The last date for receipt of the election
notice for the Dividend Reinvestment Plans is Tuesday 16 March 2004.
Rio Tinto financial information by Business Unit (1)
US$ millions Rio Tinto Gross turnover (c) EBITDA (d) Net earnings (e)
interest
% 2003 2002 2003 2002 2003 2002
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 1,329 1,117 711 676 424 401
Robe River 53.0 374 240 213 160 68 54
Iron Ore Company of Canada 58.7 442 400 47 25 7 (3)
2,145 1,757 971 861 499 452
Energy
Kennecott Energy 100.0 955 949 236 267 88 90
Rio Tinto Coal Australia 100.0 433 417 157 233 70 134
Kaltim Prima Coal (i) 142 216 74 79 31 26
Coal & Allied 75.7 597 623 52 207 (24) 68
Rossing 68.6 86 112 (33) 50 (19) 23
ERA 68.4 131 113 58 50 11 12
2,344 2,430 544 886 157 353
Industrial Minerals 1,801 1,847 465 717 154 286
Aluminium (a) 1,936 1,662 488 510 200 256
Copper
Kennecott Utah Copper 100.0 722 755 230 236 88 86
Escondida 30.0 502 283 284 121 122 32
Freeport 13.1 344 306 169 139 23 19
Freeport joint venture 40.0 397 349 225 215 104 113
Palabora 49.2 206 201 20 53 1 12
Kennecott Minerals 100.0 239 205 122 93 60 38
Rio Tinto Brasil (b) 139 115 48 40 48 16
Other (i) 176 254 51 100 (6) 25
2,725 2,468 1,149 997 440 341
Diamonds
Argyle 100.0 434 372 198 175 72 63
Diavik 60.0 122 - 106 - 41 -
556 372 304 175 113 63
Other operations 184 208 77 81 21 25
Other items 64 84 (233) (137) (45) (42)
Exploration and evaluation (127) (130) (98) (109)
Net interest (59) (95)
Adjusted earnings 1,382 1,530
Exceptional items 126 (116) 126 (879)
Total 11,755 10,828 3,764 3,844 1,508 651
Reconciliation to the profit and loss account
Profit on ordinary activities before interest 2,392 1,602
Depreciation and amortisation in subsidiaries 1,006 954
Asset write-downs relating to subsidiaries & joint ventures - 955
Depreciation and amortisation in JVs and associates 366 333
3,764 3,844
References above are to notes on page 27
Rio Tinto financial information by Business Unit (2)
US$ millions Rio Tinto Capital Depreciation & Operating assets
interest Expenditure (f) amortisation (g) (h)
31 Dec 31 Dec
% 2003 2002 2003 2002 2003 2002
Iron Ore
Hamersley (inc. HIsmelt(R)) 100.0 298 79 110 94 1,543 923
Robe River 53.0 75 81 74 50 1,852 1,409
Iron Ore Company of Canada 58.7 37 39 29 35 489 416
410 199 213 179 3,884 2,748
Energy
Kennecott Energy 100.0 168 152 105 128 561 486
Rio Tinto Coal Australia 100.0 92 126 52 37 649 406
Kaltim Prima Coal (i) 2 5 16 21 - 46
Coal & Allied 75.7 34 58 91 69 787 626
Rossing 68.6 4 5 7 5 46 48
ERA 68.4 5 4 30 23 178 140
305 350 301 283 2,221 1,752
Industrial Minerals 139 133 172 158 2,038 2,063
Aluminium (a) 436 269 169 137 3,258 2,365
Copper
Kennecott Utah Copper 100.0 83 97 92 129 1,277 1,378
Escondida 30.0 45 117 79 52 492 449
Freeport 13.1 33 23 54 50 144 128
Freeport joint venture 40.0 60 55 43 40 417 412
Palabora 49.2 66 64 17 13 426 287
Kennecott Minerals 100.0 9 21 42 43 136 155
Rio Tinto Brasil (b) 19 14 (18) 11 138 91
Other (i) 63 60 52 73 335 443
378 451 361 411 3,365 3,343
Diamonds
Argyle 100.0 22 31 76 76 600 488
Diavik 60.0 78 206 34 - 674 484
100 237 110 76 1,274 972
Other operations 4 6 37 36 98 114
Other items 17 13 9 7 (455) (148)
Less joint ventures and associates (181) (241) (366) (333) - -
Total 1,608 1,417 1,006 954 15,683 13,209
Less net debt (5,646) (5,747)
Net assets 10,037 7,462
References above are to notes on page 27
Review of Operations
Comparison of adjusted earnings
2003 adjusted earnings of $1,382 million were $148 million below the adjusted
earnings of 2002. The table below shows the difference by product group. All
financial amounts in the tables below are US$ millions unless indicated
otherwise.
$ m
2002 adjusted earnings 1,530
Iron Ore 47
Energy (196)
Industrial Minerals (132)
Aluminium (56)
Copper 99
Diamonds 50
Other operations (4)
Exploration 11
Interest 36
Other (3)
2003 adjusted earnings 1,382
Iron Ore
2003 2002 Change
Production (million tonnes) 101.5 90.1 +13%
Turnover 2,145 1,757 +22%
Net earnings 499 452 +10%
EBITDA 971 861 +13%
Capital expenditure 410 199
Market Conditions
Demand for iron ore continued to be extremely strong throughout 2003,
particularly from China where imports of iron ore were 30 per cent higher than
2002. Over the past five years the average demand growth in China has been 25
per cent per annum. Demand in other markets was also strong especially in Japan,
Korea and Taiwan.
Price increases reflected the strong market for iron ore, with 18.6 per cent
price increases for fiscal year 2004 announced for both lump and fines, which
followed a nine per cent increase in 2003.
Hamersley Iron
Net earnings at $424 million were six per cent higher than in 2002. With demand
for iron ore from China at unprecedented levels, Hamersley achieved record
production and shipments for the year, up eight per cent and nine per cent
respectively. While achieving these rates put some pressure on operating and
maintenance costs, Hamersley was able to ship ore through Robe's Cape Lambert
facility from October 2003, enhancing flexibility and helping to minimise the
effects of port congestion at Dampier. Demurrage costs were lower than in the
second half of 2002.
The expansion of the Dampier port capacity to 116 million tonnes at a cost of
$685 million was approved in December 2003. Mine capacity will be increased in
line with market demand. The expansion of Yandicoogina mine from 24 million
tonnes to 36 million tonnes at a cost of $200 million was also approved in
December 2003.
Robe River
Net earnings of $68 million were $14 million above 2002. The West Angelas Marra
Mamba product continued to enjoy strong growth in all markets, and production at
the mine continued to ramp up ahead of schedule. Output capacity will reach 20
million tonnes per year in the first quarter of 2004, almost two years ahead of
schedule. Expansion of capacity to 25 million tonnes per year was approved in
December 2003 and this capacity will be online by mid 2005.
IOC
Net earnings of $7 million compared with a net loss of $3 million in 2002.
Demand for both pellets and concentrate continued to be strong. A sustained
focus on maintenance and replacement of the least efficient equipment helped
improve mine performance in the second half of the year. Efforts are now
focused on addressing reliability issues in the concentrator and pellet plants
in order to achieve full capacity.
Energy
2003 2002 Change
Production Coal (million tonnes)
US 108.2 105.3 +3%
Australia & Indonesia 40.6 43.8 -7%
Uranium (tonnes) 5,158 4,955 +4%
Turnover 2,344 2,430 -4%
Net earnings 157 353 -56%
EBITDA 544 886 -39%
Capital expenditure 305 350
US Coal - Kennecott Energy
Net earnings of $88 million were $2 million below 2002. Coal inventories at
utilities returned to normal levels following a colder than average winter and
the prolonged summer. There was some improvement in spot prices in the second
half of the year.
Higher production at Antelope and Jacobs Ranch was partially offset by lower
production from Cordero Rojo where managing the high wall and waste piles
continued to affect costs and production volumes. Modified mining practices,
which will lower the high wall, are being implemented. A new management system
was implemented across Kennecott Energy in the fourth quarter of the year.
Similar to the 'one mine' initiative introduced at Hamersley a number of years
ago, it will streamline administrative processes and reduce costs.
Asia Pacific Thermal Coal Markets
Until very late in the year, market conditions were extremely tough for
Australian thermal coal exporters with lower realised prices and reduced
contract tonnage compounding the effects of the weakening US dollar. Prices
for 2004 deliveries have started to reflect spot prices that increased towards
the end of the year as Chinese coal was diverted to domestic markets and
Indonesian supply was affected by heavy rain.
Rio Tinto Coal Australia (formerly Pacific Coal)
Net earnings of $70 million were $64 million below 2002. Although volumes were
resilient due to its strong contract position, RTCA was adversely affected by
the weaker US dollar and lower prices. Sales from Kestrel and Blair Athol were
in line with 2002.
The Hail Creek coking coal mine commenced shipments into a firm market in the
third quarter of the year. Shipments were only 736,000 tonnes in 2003 but with
widespread interest in the product, sales are expected to increase rapidly in
2004.
Kaltim Prima Coal
Net earnings of $31 million, including a one-off benefit from the termination of
a contract, were $5 million above 2002. The sale of KPC was completed in
October 2003 and the profit on disposal has been excluded from adjusted
earnings.
Coal & Allied
The net loss of $24 million in 2003 compares with net earnings of $68 million in
2002. Lower export coal prices, the weaker US dollar and lower sales volumes
all adversely affected profitability. Due to a shortage of rail capacity in the
Hunter Valley rail system, port congestion remains an issue and demurrage costs
averaged US$1 per tonne over the year. At the mines, there have been a number
of initiatives to reduce costs in line with the curtailed production.
In December, agreement was reached between Coal & Allied and Rio Tinto for Rio
Tinto Coal Australia to manage both its own and Coal & Allied's assets under a
centralised management structure. This will significantly reduce head office
costs, benefiting both businesses. The 2003 net loss includes $6 million
relating to provisions for the costs of this reorganisation which will become
effective from February 2004.
Rossing
The net loss of $19 million in 2003 compares with net earnings of $23 million in
2002. The second half operating loss of $5 million was in line with that of the
first half. The full year result also reflects inventory write downs
necessitated by both the strength of the Namibian dollar and relatively low
uranium prices. Earnings have been adversely affected by both the strength of
the Namibian dollar and the effect of replacement in 2002 of some higher priced
contracts with ones priced in line with the then market prices. Current plans
are to close the operations when the current pit is mined out. Whilst
opportunities to extend the life of the mine are still being explored, unless a
significant improvement in both costs and prices can be achieved, earlier
closure may become necessary.
Energy Resources of Australia
Net earnings of $11 million were $1 million below 2002 due mainly to the effects
of the weaker US dollar.
Industrial Minerals
2003 2002 Change
Production Borates (000 tonnes) 559 528 +6%
Titanium dioxide (000 tonnes) 1,192 1,274 -6%
Salt (000 tonnes) 4,633 4,667 -1%
Talc (000 tonnes) 1,357 1,327 +2%
Turnover 1,801 1,847 -2%
Net earnings Rio Tinto Borax 80 87 -8%
Rio Tinto Iron & Titanium 47 161 -71%
Dampier Salt 10 24 -58%
Luzenac 17 14 +21%
154 286 -46%
EBITDA 465 717 -35%
Capital expenditure 139 133
Rio Tinto Borax
Net earnings of $80 million were $7 million below 2002. Borates production was
six per cent above 2002 as sales volumes were increased. Market conditions
remained challenging despite strong activity in the North American construction
sector and sales growth in Asia. An expansion of boric acid capacity at Boron
in 2005 is planned to meet rising global demand for boric acid. Costs were
adversely affected by higher natural gas prices, as well as rising employee
benefit costs in California and one-off charges.
Rio Tinto Iron & Titanium
Net earnings of $47 million were $114 million below 2002. The weakening US
dollar had a significant adverse effect on the result. The effect on operating
costs together with the revaluation of balance sheet items to year end exchange
rates reduced earnings by $37 million. In addition, the lower earnings
reflected the combined impact of the absence of a one-off benefit in 2002 and a
charge associated with the partial write down of a customer receivable in 2003.
The feedstock market remains in oversupply particularly in the sector of
conventional chloride slags, which was exacerbated by new supply that came on
stream in 2003 and persistent excess inventories in the hands of some pigment
producers. Demand for high grade chloride feedstock (UGS) remained strong and a
capacity increase from 250,000 tonnes per annum to 325,000 tonnes per annum in
2005 was recently approved.
Dampier Salt
Net earnings of $10 million were $14 million below last year. New sources of
salt supply to service the south east Asian chemicals industry are leading to
overcapacity. This, together with higher freight rates, resulted in an
increasingly competitive environment in the chlor-alkali industry. The result
also reflects the effect of the weakening US dollar.
Luzenac
Net earnings of $17 million were $3 million above 2002. The key paper and
polymer markets remained weak in 2003 on both sides of the Atlantic. Cost
savings from the rationalisation of production sites offset the effects of
one-off restructure costs and inflation.
Aluminium
2003 2002 Change
Production Bauxite (000 tonnes) 12,316 11,724 +5%
Alumina (000 tonnes) 2,014 1,947 +3%
Aluminium (000 tonnes) 818 795 +3%
Turnover 1,936 1,662 +16%
Net earnings 200 256 -22%
EBITDA 488 510 -4%
Capital expenditure 436 269
The above figures include Anglesey Aluminium, the responsibility for which
passed from the Copper Product Group to the Aluminium Product Group during the
year.
Prices
The average aluminium price in 2003 was seven per cent above the average for
2002. The tightness in the alumina market was demonstrated by spot prices which
averaged over $260 per tonne compared with $140 per tonne in 2002, although the
majority of alumina is sold under long term contract.
The effect of these and other prices was to increase earnings by $103 million
compared with 2002 but this was more than offset by the effect of the weakening
US dollar ($111 million).
Bauxite
Record production of bauxite was five per cent above 2002. This facilitated a
build in inventory in advance of the requirement to supply Comalco's alumina
refinery which will be commissioned during the second half of 2004 and the
potential disruption to production during construction of the NeWeipa project.
The NeWeipa project, which will take the bauxite capacity to 16.5 million tonnes
from the current capacity of 12 million tonnes, remains on schedule for
completion before the end of 2004.
Alumina
Production from Queensland Alumina in 2003 was four per cent above 2002 which
was affected by power outages and unscheduled maintenance.
Aluminium
Rio Tinto's share of aluminium production, including the additional share of
Boyne Island that was purchased in July 2002, was three per cent above 2002. In
the first half of 2002 production at Tiwai Point was constrained by higher spot
power prices in New Zealand but this was more than offset by record production
in the second half of the year. Production from each of the other smelters was
marginally higher than 2002.
Copper
2003 2002 Change
Production Mined copper (000 tonnes) 867 887 -2%
Refined copper (000 tonnes) 348 417 -17%
Mined gold (000 oz) 2,207 2,530 -13%
Turnover 2,725 2,468 +10%
Net earnings 440 341 +29%
EBITDA 1,149 997 +15%
Capital expenditure 378 451
Reflecting changes to the Copper Product Group which became effective during the
first half of the year, the figures above include Kennecott Minerals and Rio
Tinto Brasil but exclude Anglesey Aluminium.
Kennecott Utah Copper
Net earnings of $88 million were $2 million above 2002. The higher copper (+13
per cent), gold (+17 per cent) and molybdenum (+45 per cent) prices more than
offset the effect of the anticipated lower by-product grades resulting in lower
gold and molybdenum volumes. By-product grades will begin to return to life of
mine grades in 2005.
Refined copper production was 21 per cent lower than 2002. Production in the
first half of the year was adversely affected by a failure in the final
absorption tower of the acid plant which stopped smelter production for three
weeks. Smelter efficiency was affected throughout the year by the processing of
lower grade concentrate with lower copper to sulphur ratios.
The negotiation of a new labour agreement was concluded in June 2003. The
agreement has increased flexibility for personnel and work assignments. Work
practice changes at the mine, together with the implementation of 12 hour shifts
has resulted in 12 haul trucks being stood down and a 20 per cent improvement in
truck productivity. The new agreement will enable additional changes to further
increase the efficiency of the operations in the future.
Escondida
Net earnings of $122 million were $90 million above 2002. Mined production of
copper was up 32 per cent due to the commissioning of the new Laguna Seca
concentrator. Production was constrained by grade management in line with the
previously announced plan. Escondida is returning to its normal mine plan in
2004.
Freeport and Freeport Joint Venture
Net earnings of $127 million were $5 million below 2002. As Freeport, the
manager of the Grasberg mine, reported, the October 9th pit wall slide had an
adverse effect on both volumes and costs. In the fourth quarter, only lower
grade material was mined from the open pit and near term mine sequencing
operations are being directed to accelerating the removal of waste material to
ensure the restoration of safe access to the higher grade areas. Despite full
production from the underground mine, mill throughput was significantly below
capacity.
Freeport has recently given guidance that could result in a significant
reduction in metal attributable to Rio Tinto's joint venture interest in the
operation in 2004. This would be offset by an increased metal share in 2005.
Palabora
Net earnings of $1 million were $11 million below 2002 mainly due to the
strength of the South African rand. Although output from the underground mine
improved through the year, secondary breaking and the effectiveness of remote
rock breaking equipment continue to be issues. Average production in December
was 22,600 tonnes per day. The full production capacity of 30,000 tonnes per
day has been achieved on a number of days in December and remains the key
operational target. It will be achieved on a more regular basis as equipment
availability improves. Ore from the underground mine was supplemented by ore
scavenged from the open pit and imported concentrate.
Kennecott Minerals
Net earnings of $60 million were $22 million above 2002 due mainly to the higher
gold price.
Rio Tinto Brasil
Net earnings of $48 million were $32 million above 2002. The sale of Fortaleza
nickel mine was completed in January 2004 and a gain on disposal will be
recognised in the first half of 2004. However, the 2003 result benefited by $32
million from the reversal of a provision for asset impairment that had been made
in respect of Fortaleza in a previous year.
Although gold, nickel and iron ore prices were higher than last year, the result
was adversely affected by lower grades at Morro do Ouro (gold), interruptions to
mining at Fortaleza (nickel) to allow additional support and mine development
work and by higher freight costs for iron ore.
Other copper operations
The Copper group's other operations made a net loss of $6 million compared with
a net profit of $25 million in 2002. Net earnings from Peak Gold and the 25 per
cent interest in Alumbrera are included only up to the date of their disposal in
March 2003.
Copper production from Northparkes was 29 per cent lower than 2002 as a result
of lower grades with ore being sourced from the open pit and the now depleted
Lift 1 whilst the transition to Lift 2 continues.
Diamonds
2003 2002 Change
Production Diamonds (000 carats)
Argyle 30,910 33,503 -8%
Diavik 2,300 - -
Turnover 556 372 +49%
Net earnings 113 63 +79%
EBITDA 304 175 +74%
Capital expenditure 100 237
Diamond market
Demand for rough diamonds was strong throughout the year. Early in the year the
rough market outperformed the market for polished but demand and prices for
polished improved after the end of the Iraq war and the SARS outbreak.
Argyle
Net earnings of $72 million were $9 million above 2002. Argyle's results
benefited from inventory sales. The second half of the year saw final sales
from the inventory which was built up in late 2001. Carats produced were eight
per cent below 2002 due to the processing of lower grade ore in line with the
mining sequence.
Diavik
Net earnings were $41 million. Production commenced at Diavik during the year
and the operation met or exceeded expectations in almost all areas. The process
plant reached design capacity in the third quarter, about six months ahead of
schedule and grades continue to improve as mining progresses through the contact
zone and into the ore body proper. The first sales took place in the second
half of the year and prices were comfortably ahead of those assumed in the
feasibility study.
The results from the bulk sample of the A154N pipe were also positive with the
quality (and hence value) of these diamonds now considered to be much better
than originally anticipated. A strategic planning team, separate from the mine
operations, has been established to look at how best to maximise the additional
value available due to all these positive factors.
Other Operations
2003 2002 Change
Production Gold (000 oz) 524 605 -13%
Turnover 184 208 -12%
Net earnings 21 25 -16%
EBITDA 77 81 -5%
Capital expenditure 4 6
Net earnings from the other operations of $21 million were $4 million below
2002. Mining ceased at Kelian but processing will continue into 2005 although
the earnings will become more volatile as revenues and costs are less regular.
The feasibility study for a small scale diamond mine at Murowa was completed.
The next phase would be to develop a small scale operation. Costs at Lihir were
adversely affected by the weaker US dollar, higher oil prices and maintenance
costs.
Exploration
2003 2002 Change
Post tax expenditure 98 109 -10%
Exploration focuses on advancing the most promising targets on a range of grass
roots generative, drill testing stage and near mine programmes. Good results
were obtained at a number of locations.
In the first half of the year, Cortez (Rio Tinto 40 per cent) announced the
discovery of a significant new oxidised gold deposit called Cortez Hills located
12 km south east of the existing Pipeline complex in Nevada. Evaluation
continued in the second half. Evaluation work also continued at the Resolution
copper deposit in Arizona.
Exploration drilling continued on copper porphyry targets in southern Peru,
northern Chile and Argentina. Invitations for offers of interest to acquire Rio
Tinto's interest in the Marcona copper deposit in Peru were made to several
companies.
Exploration drilling, metallurgical test work and resource evaluation continued
at the Dashkasan gold project in Iran.
Evaluation work was continued at the Simandou iron ore project in Guinea and an
order of magnitude study initiated.
Capital Projects
The following major projects have recently been approved, are in construction or
were completed during the year.
Project Estimated Cost Status/Milestones
(100%)
Completed in 2003
Copper - Escondida Phase IV (Rio Tinto 30%). A $1,045 m The commissioning of the project was
new 110,000 tonnes of ore per day copper completed in the second quarter of 2003.
concentrator facility.
Diamonds - Diavik (Rio Tinto 60%). A new mine $900 m The project was completed within budget
in the North West Territories of Canada with and well inside the original schedule.
average annual production of about six million
carats.
Energy - Hail Creek (Rio Tinto 92%). Coking $255 m The project was completed on time and on
coal mine in Queensland with a capacity of 5.5 budget in the third quarter of the year.
million tonnes per year. Interest in the product is strong.
Ongoing
Aluminium - Comalco's alumina refinery (Rio $750 m The project is currently on track and on
Tinto 100%). Construction in Queensland of a budget. As at the end of December 2003,
greenfield alumina refinery with initial annual engineering was complete, construction 58%
capacity of 1.4 million tonnes but with options complete and A$1,300 million had been
to expand to 4.2 million tonnes. committed. First production is due in
late 2004 with first shipments in early
2005.
Copper - Northparkes Lift 2 Expansion project $100 m Variable ground conditions and higher than
(Rio Tinto 80%). New 15,000 tonne per day expected rock stress have caused delays as
block cave mine approximately 400 metres below additional ground support has been
the existing underground operation. necessary to ensure the safety of
construction crews. The project cost has
increased from $76 million to $100 million
and the project remains behind schedule.
Copper - Palabora Underground (Rio Tinto 49%). $460 m The production ramp-up has been
30,000 tonnes of ore per day block caving constrained by the inability to clear
operation. drawpoints efficiently that have been
blocked with poorly fragmented, large
rocks. Production of 30,000 tonnes was
achieved on a number of days in December
and will be achieved on a more regular
basis as equipment availability improves.
Iron ore - Eastern Range mine (Rio Tinto 54%). $67 m Construction was on schedule and 95%
Development of a new mine with a capacity of 10 complete at the beginning of January.
million tonnes per annum. The mine will Preparations for commissioning and
service a joint venture formed between operations handover are underway.
Hamersley and Shanghai Baosteel Corporation.
Iron Ore - HIsmelt(R) direct iron smelting $200 m Engineering is 93% complete and
technology (Rio Tinto 60%). A joint venture construction 62% complete. A$277 million
between Rio Tinto (60%), Nucor Corporation has been committed to date. First
(25%) Mitsubishi Corporation (10%) and Shougang production is expected in the second half
Corporation (5%) to construct an 800,000 tonne of 2004.
capacity plant at Kwinana, Western Australia.
Other - Project Daybreak (formerly Project Initial cash Land sales are planned to start in 2004
Sunrise, Rio Tinto 100%). Development for requirement of and ramp up over a period of 5-6 years.
mixed use of a 4,100 acre area of land near $ 50 m
Salt Lake City, Utah.
Recently approved
Copper - Escondida Norte (Rio Tinto 30%). $400 m Project approved in June 2003. First
Satellite deposit will provide mill feed to production is expected in the fourth
keep Escondida capacity above 1.2 million quarter of 2005.
tonnes per annum to the end of 2008.
Aluminium - NeWeipa. Expansion of Weipa (Rio $150 m The project is expected to be complete by
Tinto 100%) bauxite production to 16.5 million the end of 2004.
tonnes, and move to a two mine operation. The
majority of the expenditure is for the
construction of a purpose built beneficiation
plant at Andoom to process fine ore.
Expenditure to support Comalco's alumina
refinery is $20 million.
Iron ore - Expansion of Hamerlsey's (Rio Tinto $685m The project was approved in early December
100%) port and rail capacity to 116 million 2003 and construction has commenced. Long
tonnes per annum. Commissioning will be in the lead time items costing over $200 million
second half of 2005. were ordered in advance of approval.
Iron ore -Expansion of Yandicoogina mine (Rio $200m The project was approved in early December
Tinto 100%) from 24 million tonnes per annum to 2003 and construction has commenced.
36 million tonnes per annum. Commissioning
will be in the first half of 2005.
Iron ore - Expansion of West Angelas (Rio Tinto $105m The project was approved in late December
53%) from 20 million tonnes to per annum to 25 2003 and construction will commence in
million tonnes per annum. Commissioning will early 2004.
be in the second half of 2005.
Divestments
The sale of Rio Tinto's 25 per cent interest in Minera Alumbrera, Argentina
together with its wholly owned Peak Gold mine in New South Wales, Australia was
completed in March 2003. Cash consideration was $210 million.
The sale of Rio Tinto and BP's interests in PT Kaltim Prima Coal was completed
in October 2003. Consideration was $500 million including assumed debt with
each company receiving 50 per cent of the proceeds.
Both the above profits on disposal are disclosed separately on the face of the
Profit and Loss Account and are excluded from full year adjusted earnings.
The sale of the Fortaleza nickel mine was completed in January 2004. The final
consideration, which is dependent on the forward nickel price, is expected to be
at least $90 million.
In January 2004, Rio Tinto reached agreement for the sale of its remaining 20
per cent interest in the Sepon project in Laos for cash consideration of $85
million.
Price and exchange sensitivities
The following sensitivities give the estimated effect on net earnings assuming
that the price or exchange rate moved in isolation. The relationship between
currencies and commodity prices is a complex one and movements in exchange rates
can cause movements in commodity prices and vice versa. The exchange rate
sensitivities quoted below include the effect on operating costs of movements in
exchange rates but exclude the effect due to the revaluation of foreign currency
working capital. They should therefore be used with care.
Estimated effect on Rio Tinto's full year net earnings of:
Change in full year average US$m
Copper +/-8 c/lb 109
Gold +/-$36/oz 52
Aluminium +/- 6.5c/lb 95
Australian dollar +/- 6.5USc 141
Canadian dollar +/- 7.1USc 26
South African rand +/- 0.8 rand 22
For further information, please contact:
LONDON AUSTRALIA
Media Relations Media Relations
Lisa Cullimore Ian Head
Office: +44 (0) 20 7753 2305 Office: +61 (0) 3 9283 3620
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Investor Relations Investor Relations
Peter Cunningham Dave Skinner
Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628
Mobile: +44 (0) 7711 596 570 Mobile: +61 (0) 408 335 309
Richard Brimelow Daphne Morros
Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639
Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 408 360 764
Website: www.riotinto.com
Profit and loss account
Years ended 31 December
2003 2002
US$m US$m
Gross turnover (including share of joint ventures and associates) 11,755 10,828
Share of joint ventures' turnover (1,820) (1,662)
Share of associates' turnover (707) (723)
Consolidated turnover 9,228 8,443
Net operating costs (2002 included exceptional charges of US$1,078 million) (7,732) (7,612)
Group operating profit 1,496 831
Share of operating profit of joint ventures (2002 included
exceptional charges of US$16 million) 536 532
Share of operating profit of associates 234 239
Profit on disposal of interests in subsidiary, joint venture and associate 126 -
Profit on ordinary activities before interest 2,392 1,602
Net interest payable (206) (237)
Amortisation of discount (92) (54)
Profit on ordinary activities before taxation 2,094 1,311
Taxation (2002 included tax relief on exceptional charges of US$42 million) (567) (708)
Profit on ordinary activities after taxation 1,527 603
Attributable to outside equity shareholders (2002 included
exceptional charges of US$173 million) (19) 48
Profit for the financial year (net earnings) 1,508 651
Dividends to shareholders (882) (826)
Retained profit/(loss) for the year 626 (175)
Earnings per ordinary share 109.5c 47.3c
Adjusted earnings per ordinary share 100.3c 111.2c
Dividends per share to Rio Tinto shareholders 64.0c 60.0c
Diluted earnings per share figures are 0.2 US cents (2002: 0.1 US cents) lower
than the earnings per share figures above.
For the purpose of calculating earnings and adjusted earnings per share, the
weighted average number of Rio Tinto plc and Rio Tinto Limited shares
outstanding during the period was 1,378 million, being the average number of Rio
Tinto plc shares outstanding (1,066 million) plus the average number of Rio
Tinto Limited shares outstanding not held by Rio Tinto plc (312 million).
The results for both years relate wholly to continuing operations.
The profit for each year is stated after exceptional items; these are added back
in the table below to arrive at adjusted earnings.
2003 2002
US$m US$m
Profit for the financial year (net earnings) 1,508 651
Exceptional items impact on the above profit and loss account as follows:
Profit on disposal of interests in subsidiary, joint venture and associate 126 -
Asset write downs - (978)
Environmental remediation charge - (116)
Tax relief on exceptional items - 42
Attributable to outside equity shareholders - 173
Net exceptional items 126 (879)
Adjusted earnings 1,382 1,530
Cash flow statement
Years ended 31 December
2003 2002
US$m US$m
Cash flow from operating activities (see below) 2,888 3,134
Dividends from joint ventures 470 513
Dividends from associates 128 96
Total cash flow from operations 3,486 3,743
Interest received 30 80
Interest paid (231) (264)
Dividends paid to outside shareholders (76) (117)
Returns on investment and servicing of finance (277) (301)
Taxation (917) (722)
Purchase of property, plant and equipment (1,533) (1,296)
Funding of Group share of joint ventures' and associates' capital expenditure (94) (137)
Other funding of joint ventures and associates (18) (6)
Exploration and evaluation expenditure (130) (124)
Sale of property, plant and equipment 19 16
Net sales / (purchases) of other investments 83 (323)
Capital expenditure and financial investment (1,673) (1,870)
Disposals less acquisitions 405 127
Equity dividends paid to Rio Tinto shareholders (833) (948)
Cash inflow before management of liquid resources
and financing 191 29
Net cash (outflow)/inflow from management of liquid resources (105) 213
Ordinary shares issued for cash 33 37
Loans received less repaid (202) (409)
Management of liquid resources and financing (274) (159)
Decrease in cash (83) (130)
Cash flow from operating activities
Group operating profit 1,496 831
Exceptional charges (non cash items) - 1,078
1,496 1,909
Depreciation and amortisation 1,006 954
Exploration and evaluation charged against profit 127 130
Provisions 154 58
Utilisation of provisions (159) (118)
Change in inventories (43) 85
Change in accounts receivable and prepayments 154 158
Change in accounts payable and accruals 66 (57)
Other items 87 15
Cash flow from operating activities 2,888 3,134
Net debt of US$5,646 million at 31 December 2003 compares with US$5,747 million
at 31 December 2002. The decrease of US$101 million comprises the cash inflow
before management of liquid resources and financing of US$191 million less other
items of US$90 million, including the effect of exchange rate movements.
Balance sheet
At 31 December
2003 2002 2003 2002
A$m A$m US$m US$m
Intangible fixed assets
1,583 1,791 Goodwill 1,185 1,015
92 101 Exploration and evaluation 69 57
1,675 1,892 1,254 1,072
Tangible fixed assets
20,294 21,503 Property, plant and equipment 15,196 12,183
Investments
4,318 5,487 Share of gross assets of joint ventures 3,233 3,109
(1,349) (2,097) Share of gross liabilities of joint ventures (1,010) (1,188)
2,969 3,390 2,223 1,921
690 1,158 Investments in associates/other investments 517 656
3,659 4,548 Total investments 2,740 2,577
25,628 27,943 Total fixed assets 19,190 15,832
Current assets
2,381 2,651 Inventories 1,783 1,502
Accounts receivable and prepayments
2,236 2,820 Falling due within one year 1,674 1,598
1,080 1,131 Falling due after more than one year 809 641
3,316 3,951 2,483 2,239
307 540 Investments 230 306
528 574 Cash 395 325
6,532 7,716 Total current assets 4,891 4,372
Current liabilities
(2,930) (5,941) Short term borrowings (2,194) (3,366)
(2,858) (3,484) Accounts payable and accruals (2,140) (1,974)
(5,788) (9,425) Total current liabilities (4,334) (5,340)
744 (1,709) Net current assets / (liabilities) 557 (968)
26,372 26,234 Total assets less current liabilities 19,747 14,864
Liabilities due after one year
(5,140) (4,780) Medium and long term borrowings (3,849) (2,708)
(430) (537) Accounts payable (322) (304)
(6,058) (6,375) Provisions for liabilities and charges (4,536) (3,612)
(1,340) (1,373) Outside shareholders' interests (equity) (1,003) (778)
13,404 13,169 10,037 7,462
Capital and reserves
Share capital
207 272 - Rio Tinto plc 155 154
1,449 1,440 - Rio Tinto Limited (excluding Rio Tinto plc interest) 1,085 816
2,176 2,842 Share premium account 1,629 1,610
446 535 Other reserves 334 303
9,126 8,080 Profit and loss account 6,834 4,579
13,404 13,169 Equity shareholders' funds 10,037 7,462
At 31 December 2003, Rio Tinto plc had 1,067 million ordinary shares in issue
and Rio Tinto Limited had 312 million shares in issue, excluding those held by
Rio Tinto plc.
At 31 December 2003, net tangible assets per share amounted to US$6.38 (31
December 2002: US$4.64).
In accordance with FRS 4, all commercial paper is classified as short term
borrowings though US$1,100 million (31 December 2002: US$1,749 million) is
backed by medium term facilities. Under generally accepted accounting
principles in the United States ('US GAAP') and Australia ('Australian GAAP'),
this amount would be grouped within non-current borrowings at 31 December 2003.
Current asset investments include US$228 million (31 December 2002: US$304
million) relating to US treasury bills, which are held as security for the
deferred consideration for assets acquired during 2002.
Reconciliation with Australian GAAP
At 31 December
2003 2002 2003 2002
A$m A$m US$m US$m
2,133 2,818 Adjusted earnings reported under UK GAAP 1,382 1,530
194 (1,619) Exceptional items 126 (879)
2,327 1,199 Net earnings under UK GAAP 1,508 651
Increase/(decrease) net of tax in respect of :
(253) (308) Goodwill amortisation (164) (167)
- (35) Adjustments to asset carrying values - (19)
(8) (24) Taxation (5) (13)
11 6 Other 7 3
2,077 838 Net earnings under Australian GAAP 1,346 455
150.8c 60.9c Earnings per ordinary share under Australian GAAP 97.7c 33.1c
Diluted earnings per share under Australian GAAP are 0.2 US cents (2002: 0.1 US
cents) less than the above earnings per share figures.
Exceptional items
Net earnings under United Kingdom generally accepted accounting principles ('UK
GAAP') include exceptional gains of US$126 million. In 2002 there was an
exceptional charge for asset write downs and environmental remediation of US$879
million. The concepts of Adjusted earnings and exceptional items do not exist
under Australian GAAP.
2003 2002 2003 2002
A$m A$m US$m US$m
13,404 13,169 Shareholders' funds under UK GAAP 10,037 7,462
Increase/(decrease) net of tax in respect of :
1,165 1,843 Goodwill 872 1,044
92 131 Taxation 69 74
626 - Dividends 469 -
(32) (41) Other (24) (23)
15,255 15,102 Shareholders' funds under Australian GAAP 11,423 8,557
The Group's financial statements have been prepared in accordance with UK GAAP,
which differs in certain respects from Australian GAAP. These differences
relate principally to the following items, and the effect of each of the
adjustments to net earnings and shareholders' funds that would be required under
Australian GAAP is set out above.
Goodwill
For 1997 and prior years, UK GAAP permitted the write off of purchased goodwill
on acquisitions directly against reserves. Under Australian GAAP, goodwill is
capitalised and amortised by charges against income over the period during which
it is expected to be of benefit, subject to a maximum of 20 years. Goodwill
previously written off directly to reserves in the UK GAAP accounts has been
reinstated and amortised for the purpose of the reconciliation statements.
For acquisitions in 1998 and subsequent years, goodwill is capitalised under UK
GAAP, in accordance with FRS 10. Adjustments are required for Australian GAAP
purposes where such capitalised goodwill is amortised over periods exceeding 20
years in the UK GAAP accounts.
Taxation
Under UK GAAP, provision for taxes arising on remittances of earnings can only
be made if the dividends have been accrued or if there is a binding agreement
for the distribution of the earnings. Under Australian GAAP, provision must be
made for tax arising on expected future remittances of past earnings.
Under UK GAAP, tax benefits associated with goodwill charged directly to
reserves, in 1997 and previous years, must be accumulated in the deferred tax
provision. This means that the tax benefits are not included in earnings until
the related goodwill is charged through the profit and loss account on disposal
or closure. For Australian GAAP, no provision is required for such deferred tax
because the goodwill that gave rise to these tax benefits was capitalised and
gives rise to amortisation charges against profit.
Proposed dividends
Under UK GAAP, ordinary dividends are recognised in the financial year in
respect of which they are paid. Under Australian GAAP, with effect from 1
January 2003, such dividends are not recognised until they are declared,
determined or publicly recommended by the Board of directors. Prior to 1
January 2003, Australian GAAP was consistent with UK GAAP.
Reconciliation of movements in shareholders' funds
2003 2002
US$m US$m
Profit for the year 1,508 651
Dividends (882) (826)
626 (175)
Adjustment on currency translation 1,924 579
Share capital issued 25 15
2,575 419
Opening shareholders' funds 7,462 7,043
Closing shareholders' funds 10,037 7,462
Prima facie tax reconciliation
2003 2002
US$m US$m
Profit on ordinary activities before taxation 2,094 1,311
Prima facie tax at UK and Australian rate of 30% 628 393
Impact of exceptional charges (38) 328
Other permanent differences
Other tax rates applicable outside the UK and Australia 59 56
Permanently disallowed amortisation/depreciation 53 51
Research, development and other investment allowances (5) (7)
Resource depletion allowances (54) (58)
Other (24) 24
29 66
Other deferral of taxation
Capital allowances in excess of depreciation charges (48) (69)
Other timing differences 14 -
Total timing differences related to the current period (34) (69)
Current taxation charge for the year 585 718
Deferred tax recognised on timing differences 34 27
Deferred tax impact of changes in tax rates - (14)
Other deferred tax items (52) (23)
Total taxation charge for the year 567 708
Exploration and evaluation properties
2003 2002
US$m US$m
At cost less amounts written off
At 1 January 694 678
Adjustment on currency translation 119 25
Expenditure in the year 130 124
Charged against profit for the year (47) (50)
Disposals, transfers and other movements (62) (83)
At 31 December 834 694
Provision
At 1 January (637) (623)
Adjustment on currency translation (104) (22)
Charged against profit for the year (80) (80)
Disposals, transfers and other movements 56 88
At 31 December (765) (637)
Net balance sheet amount 69 57
Product analysis
2003 2002 2003 2002
% % US$m US$m
Gross turnover
12.7 12.4 Copper 1,495 1,348
9.1 9.7 Gold (all sources) 1,068 1,046
18.4 16.4 Iron ore 2,165 1,772
18.1 20.3 Coal 2,125 2,203
15.7 15.4 Aluminium 1,847 1,663
15.7 17.5 Industrial minerals 1,849 1,898
4.7 3.4 Diamonds 556 372
5.6 4.9 Other products 650 526
100.0 100.0 11,755 10,828
Net earnings
27.1 20.8 Copper, gold and by-products 429 369
31.6 25.6 Iron ore 500 455
10.3 17.9 Coal 163 318
11.9 14.5 Aluminium 189 257
10.0 16.4 Industrial minerals 159 292
7.0 3.5 Diamonds 111 63
2.1 1.3 Other products 33 22
100.0 100.0 1,584 1,776
Exploration and evaluation (98) (109)
Net interest (59) (95)
Other items (45) (42)
1,382 1,530
Exceptional items 126 (879)
1,508 651
Geographical analysis (by country of origin)
2003 2002 2003 2002
% % US$m US$m
Gross turnover
30.3 31.2 North America 3,567 3,377
43.8 41.6 Australia and New Zealand 5,152 4,500
5.8 4.8 South America 682 525
5.6 7.2 Africa 662 783
8.8 9.6 Indonesia 1,037 1,039
5.7 5.6 Europe and other countries 655 604
100.0 100.0 11,755 10,828
Net earnings
25.2 20.1 North America 363 326
52.3 57.8 Australia and New Zealand 754 939
10.8 4.0 South America 156 65
0.8 7.1 Africa 12 115
12.6 11.4 Indonesia 181 185
(1.7) (0.4) Europe and other countries (25) (5)
100.0 100.0 1,441 1,625
Net interest (59) (95)
1,382 1,530
Exceptional items 126 (879)
1,508 651
Comparative figures in the Product analysis have been restated following a
change in the basis of attribution of post retirement costs to business units,
and consequently to Product groups, which is explained further on page 27.
The above analysis includes Rio Tinto's share of the results of joint ventures
and associates including interest.
The amortisation of discount is included in the applicable product category and
geographical area. All other financing costs of subsidiaries are included in
'Net interest'.
Geographical analysis (by destination)
2003 2002 2003 2002
% % US$m US$m
Gross turnover
25.7 29.0 North America 3,024 3,143
23.3 21.6 Europe 2,742 2,340
18.0 17.9 Japan 2,119 1,943
21.5 19.2 Other Asia 2,527 2,083
7.2 8.2 Australia and New Zealand 845 887
4.3 4.1 Other 498 432
100.0 100.0 11,755 10,828
Accounting principles
The financial information included in this report has been prepared in
accordance with United Kingdom Accounting Standards and an Order under section
340 of the Australian Corporations Act 2001 issued by the Australian Securities
and Investments Commission on 21 July 2003. The UK GAAP financial information
has been drawn up on the basis of accounting policies consistent with those
applied in the financial statements for the year to 31 December 2002.
Prior year financial information
Prior year information for the year 2002 has been extracted from the full
financial statements prepared on the historical cost basis as filed with the
Registrar of Companies. The auditors' report on the financial statements for
the year ended 31 December 2002 was unqualified and did not contain statements
under section 237(2) of the United Kingdom Companies Act 1985 (regarding
adequacy of accounting records and returns), or under section 237(3) (regarding
provision of necessary information and explanations).
Financial information
This preliminary announcement does not constitute the Group's full financial
statements for 2003, which will be approved by the Board and reported on by the
auditors on 20 February 2004 and subsequently filed with the Registrar of
Companies and the Australian Securities and Investments Commission.
Accordingly, the financial information for 2003 is unaudited. The preliminary
announcement contains financial information for 2002 which has been extracted
from the audited financial statements for that year. The accounts of Rio Tinto
plc and Rio Tinto Limited for 2002 were the subject of unqualified audit reports
and have been delivered to the Registrar of Companies in the UK and the
Australian Securities and Investments Commission, respectively.
Reconciliation with US GAAP
At 31 December
2003 2002
US$m US$m
Net earnings under UK GAAP 1,508 651
Increase/(decrease) net of tax in respect of :
Amortisation of goodwill - subsidiaries and joint arrangements 76 90
Amortisation of intangibles - subsidiaries and joint arrangements (40) (59)
Amortisation of intangibles - equity accounted companies (7) (9)
Effect of different ore reserve estimates (82) -
Pensions/post retirement benefits 44 2
Share options (21) (17)
Adjustments to asset carrying values (39) (317)
Exchange differences included in earnings under US GAAP 813 287
Other (97) (47)
Income before cumulative effect of change in accounting principle 2,155 581
Cumulative effect of change in accounting principle for close down and (178) -
restoration costs
Net income under US GAAP 1,977 581
Basic earnings per ordinary share under US GAAP
Before cumulative effect of change in accounting principle 156.4c 42.2c
After cumulative effect of change in accounting principle 143.5c 42.2c
Shareholders' funds under UK GAAP 10,037 7,462
Increase/(decrease) net of tax in respect of :
Goodwill - subsidiaries and joint arrangements 1,198 1,065
Goodwill - equity accounted companies 352 352
Intangibles - subsidiaries and joint arrangements 240 271
Intangibles - equity accounted companies 42 49
Effect of different ore reserve estimates (82) -
Taxation 69 74
Proposed dividends 469 430
Adjustments to asset carrying values 223 262
Provision for close down and restoration costs - 178
Start-up costs (89) (70)
Mark to market of derivative contracts 255 (14)
Pensions/post retirement benefits (352) (371)
Share options (60) (38)
Other (258) (133)
Shareholders' funds under US GAAP 12,044 9,517
Diluted earnings per share under US GAAP are 0.2 US cents (2002: 0.1 US cents)
less than the above earnings per share figures.
The Group's financial statements have been prepared in accordance with UK GAAP
which differ in certain respects from US GAAP. The effect of adjusting net
earnings and shareholders' funds for the following differences in treatment
under US GAAP is set out above.
Goodwill - For 1997 and prior years, UK GAAP permitted the write off of
purchased goodwill on acquisition directly against reserves. For acquisitions in
1998 and subsequent years, goodwill is capitalised. Goodwill previously written
off directly to reserves in the UK GAAP financial statements was therefore
reinstated and amortised, under US GAAP. From 1 January 2002, goodwill and
indefinite lived intangible assets are no longer amortised under US GAAP but are
reviewed annually for impairment under FAS 142, 'Goodwill and other Intangible
Assets'. Goodwill amortisation charged against UK GAAP earnings is added back in
the US GAAP reconciliation.
Effect of different ore reserve estimates based on historical prices - For UK
and Australian reporting, the Group's ore reserve estimates are determined in
accordance with the JORC code and are based on forecasts of future commodity
prices. During 2003, the SEC formally indicated that, for US reporting,
historical price data should be used. The application of historical prices has
led to reduced ore reserve quantities for US reporting purposes for certain of
the Group's operations, which results in lower earnings for US reporting,
largely as a result of higher depreciation charges.
Adjustments to asset carrying values - Following the implementation of FRS 11 in
1998, impairment of fixed assets under UK GAAP is recognised and measured by
reference to the discounted cash flows expected to be generated by the asset.
Under US GAAP, impairment is recognised only when the anticipated undiscounted
cash flows are insufficient to recover the carrying value of the asset. Where an
asset is found to be impaired under US GAAP, the amount of such impairment is
generally similar under US GAAP to that computed under UK GAAP, except where the
US GAAP carrying value includes additional goodwill. Under UK GAAP, impairment
provisions may be written back in a future year if the expected recoverable
amount of the asset increases. Such write backs of impairment provisions are not
permitted under US GAAP. Therefore, any credits to UK GAAP earnings resulting
from such write backs are reversed in the US GAAP reconciliation.
Tax - Differences exist between UK GAAP and US GAAP which impact on the
treatment of tax benefits related to goodwill previously written off to
reserves under UK GAAP, and on tax relating to future remittances of earnings.
These differences also arise in the Reconciliation with Australian GAAP and are
explained further on page 22.
Reconciliation with US GAAP (continued)
Provisions for close down and restoration costs - FAS 143 'Accounting for Asset
Retirement Obligations' has been implemented with effect from 1 January 2003.
Under this US standard, provision is made in the accounting period when the
related environmental disturbance occurs, based on the net present value of
estimated future costs. The costs so recognised are capitalised and depreciated
over the estimated useful life of the related asset. Over time, the liabilities
will be accreted for the change in their present value. This accounting
treatment is broadly similar to Rio Tinto's established policy under UK GAAP.
Consequently, the adjustment to the 'Provision for close down and restoration
costs' included in the above reconciliation at 31 December 2002 has now been
eliminated through the cumulative effect of this change in accounting principle.
Share options - Under UK GAAP, no cost is accrued where the option scheme
applies to all relevant employees and the intention is to satisfy the share
options by the issue of new shares. Prior to 2002, under US GAAP the Group
accounted for share option plans under the recognition and measurement
provisions of APB Opinion 25, 'Accounting for Stock Issued to Employees', and
related interpretations. In 2002 the Group adopted the fair value recognition
provisions of FAS 123, 'Accounting for Stock Based Compensation', which is
considered by the SEC to be a preferable accounting method for share based
employee compensation. Fair value is determined using an option pricing model.
Exchange differences, Debt - The Group finances its operations primarily in US
dollars and a significant proportion of the Group's US dollar debt is located in
its Australian operations. Under UK GAAP, this debt is dealt with in the context
of the currency status of the Group as a whole and exchange differences reported
by the Australian operations are adjusted through reserves. US GAAP permits such
exchange gains and losses to be taken to reserves only to the extent that the US
dollar debt hedges US dollar assets in the Australian group. Net exchange gains
of US$623 million on US dollar debt that do not qualify for hedge accounting
under US GAAP have therefore been recorded in US GAAP earnings.
Exchange differences, Mark to market of derivative contracts - The Group is
party to derivative contracts in respect of some of its future transactions in
order to hedge its exposure to fluctuations in exchange rates against the US
dollar. Under UK GAAP, these contracts are accounted for as hedges: gains and
losses are deferred and subsequently recognised when the hedged transaction
occurs. However, certain of the Group's derivative contracts do not qualify for
hedge accounting under FAS 133 (amended), 'Accounting for Derivative Instruments
and Hedging Activities', principally because the hedge is not located in the
entity with the exposure. Unrealised gains of US$115 million on such
derivatives have therefore been recorded in US GAAP earnings. Realised gains of
US$75 million, which have been capitalised under UK GAAP, have been included in
earnings under US GAAP.
Notes to financial information by business unit (Pages 6 and 7)
Business units have been classified in the analysis on pages 6 and 7 according
to the Group's current management structure. Generally, this structure has
regard to the primary product of each business unit but there are exceptions.
For example, the Copper group includes certain gold operations. This summary
differs, therefore, from the Product analysis in which the contributions of
individual business units are attributed to several products as appropriate.
The Product group previously known as 'Diamonds and Gold' has been redesignated
the 'Diamonds' group, with effect from 1 January 2003. Kennecott Minerals and
Rio Tinto Brasil are now included in the 'Copper' group. Kelian, Lihir and Rio
Tinto Zimbabwe are included in 'Other Operations'. In addition, Rio Tinto
Aluminium has been transferred from 'Copper' to 'Aluminium'.
From 1 January 2003, the way in which post retirement costs are attributed to
business units, and consequently product groups, has been revised. The regular
cost component of post retirement costs is included in business unit earnings
and the balance of post retirement cost is recognised centrally in 'other
items'. The analyses of 2002 Net Earnings, EBITDA and Operating Assets have
been restated to reflect this reallocation. There is no impact on Net Earnings
for the Group.
( a ) Includes Rio Tinto's interest in Anglesey Aluminium (51%) and Comalco
(100%).
( b ) Includes Rio Tinto's interest in Morro do Ouro (51%) and Fortaleza which
was 99.9% at 31 December 2003.
( c ) Gross turnover includes 100% of subsidiaries' turnover and the Group's
share of the turnover of joint ventures and associates.
( d ) EBITDA of subsidiaries, joint ventures and associates represents profit
before: tax, net interest payable, depreciation and amortisation.
( e ) Net earnings represent after tax earnings attributable to the Rio Tinto
Group. Earnings of subsidiaries are stated before interest charges but after the
amortisation of the discount related to provisions. Earnings attributable to
joint ventures and associates include interest charges.
( f ) Capital expenditure comprises the net cash outflow on purchases less
disposals of property, plant and equipment. The details provided include 100%
of subsidiaries' capital expenditure and Rio Tinto's share of the capital
expenditure of joint ventures and associates. Amounts relating to joint ventures
and associates not specifically funded by Rio Tinto are deducted before arriving
at the total capital expenditure for the Group.
( g ) Depreciation figures include 100% of subsidiaries' depreciation and
goodwill amortisation and include Rio Tinto's share of the depreciation and
goodwill amortisation of joint ventures and associates. Amounts relating to
joint ventures and associates are deducted before arriving at the total
depreciation charge.
( h ) Operating assets of subsidiaries comprise net assets before deducting net
debt, less outside shareholders' interests which are calculated by reference to
the net assets of the relevant companies (i.e. net of such companies' debt).
For joint ventures and associates Rio Tinto's net investment is shown. For
joint ventures and associates shown in the Financial Information by Business
Unit on pages 6 and 7, Rio Tinto's share of operating assets, defined as for
subsidiaries, are as follows: Escondida US$905 million (2002: US$913 million),
Freeport joint venture US$417 million (2002: US$412 million), Freeport associate
US$380 million (2002: US$533 million).
( i ) During 2003, Rio Tinto sold its interests in Kaltim Prima Coal, Alumbrera
and Peak.
Summary financial data in Australian dollar, Sterling and US dollar
2003 2002 2003 2002 2003 2002
A$m A$m £m £m US$m US$m
18,143 19,945 7,198 7,219 Gross turnover (including share of 11,755 10,828
joint ventures and associates)
3,232 2,415 1,282 874 Profit on ordinary activities before taxation 2,094 1,311
2,133 2,818 846 1,020 Adjusted earnings* 1,382 1,530
2,327 1,199 923 434 Profit for the financial year (net earnings) 1,508 651
169.0c 87.1c 67.1p 31.5p Earnings per ordinary share 109.5c 47.3c
154.8c 204.7c 61.4p 74.1p Adjusted earnings per ordinary share* 100.3c 111.2c
Dividends per share to Rio Tinto shareholders
37.13p 37.47p -Rio Tinto plc 64.0c 60.0c
89.70c 105.93c -Rio Tinto Limited 64.0c 60.0c
5,380 6,896 2,135 2,496 Total cash flow from operations 3,486 3,743
(2,582) (3,444) (1,024) (1,246) Capital expenditure and financial investment (1,673) (1,870)
(7,540) (10,144) (3,170) (3,586) Net debt (5,646) (5,747)
13,403 13,169 5,636 4,656 Equity shareholders' funds 10,037 7,462
* Adjusted earnings exclude profit on disposal of interests in subsidiary, joint
venture and associate of $US126 million, and for 2002 excluded exceptional
charges of US$879 million.
The financial data above have been extracted from the primary financial
statements set out on pages 19 to 21. The Australian $ and Sterling amounts are
based on the US $ amounts, retranslated at average or closing rates as
appropriate. For further information on these exchange rates, please see below.
Metal prices and exchange rates
Years ended 31 December
2003 2002 Change
Metal prices - average for the period
Copper - US cents/lb 80c 71c 13%
Aluminium - US cents/lb 65c 61c 7%
Gold - US$/troy oz US$363 US$309 17%
Average exchange rates in US$
Sterling 1.63 1.50 9%
Australian dollar 0.65 0.54 20%
Canadian dollar 0.71 0.64 11%
South African rand 0.132 0.095 39%
Period end exchange rates in US$
Sterling 1.78 1.60 11%
Australian dollar 0.75 0.57 32%
Canadian dollar 0.77 0.63 22%
South African rand 0.151 0.116 30%
The Australian $ exchange rates, given above, are based on the Hedge Settlement
Rate set by the Australian Financial Markets Association.
Availability of this report
This report is available on the Rio Tinto website.
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