RTNTF - Rio Tinto Group (RIO) 2023 Full Year Results Earnings Call Transcript

2024-02-21 07:12:09 ET

Rio Tinto Group (RIO)

2023Full Year Results Earnings Conference Call

February 21, 2024 3:00 AM ET

Company Participants

Menno Sanderse – Investor Relations

Jakob Stausholm – Chief Executive Officer

Peter Cunningham – Chief Financial Officer

Conference Call Participants

Richard Hatch – Berenberg

Paul Young – Goldman Sachs

Kaan Peker – RBC

Jason Fairclough – Bank of America

Bob Brackett – Bernstein

Rahul Anand – Morgan Stanley

Lyndon Fagan – JPMorgan

Alain Gabriel – Morgan Stanley

Chris LaFemina – Jefferies

Lachlan Shaw – UBS

Robert Stein – Macquarie

Grant Sporre – Bloomberg Intelligence

Liam Fitzpatrick – Deutsche Bank

Glyn Lawcock – Barrenjoey

Myles Allsop – UBS

Matt Greene – Goldman Sachs

Alex Pearce – BMO Capital Market

Presentation

Menno Sanderse

Great. Hello, everybody, and welcome to Rio Tinto's 2023 Results Meeting. As usual, a couple of housekeeping items before we start proceedings. Can I please ask you to put your mobile phones to silent or turn them off? And secondly, for those here in the room today, there is no fire drill planned. If you hear a fire alarm, please leave either fire doors at the back or the front and follow the instructions of the fire marshals. Jakob and Peter will present the key items of the results and the forward-looking items for about 30 minutes, and then we'll have 45 minutes for Q&A. Please limit yourself to one question and one follow-up during that Q&A session. Jakob, over to you.

Jakob Stausholm

Yes, thank you, Meno, and good morning, good evening to everyone. Thank you for joining us. The 23rd of January was the saddest day of my five years, five and a half years at Rio Tinto. On that day, a chartered plane crashed near Fort Smith in Canada. We lost four colleagues from our Diavik mine and two airline crew members. We are completely devastated. When I went to Diavik and Fort Smith, I saw how heartbreaking this tragedy is for the loved ones, our team and the whole community. Our focus is on supporting everyone who has been affected as the authorities continue to investigate what has happened. A tragedy like this puts everything into perspective. It's a horrific reminder that nothing, absolutely nothing, is more important than safety. Safety continues to be our top priority, our work to evolve our culture and processes to ensure everyone everywhere goes home safely every day is never done. So allow me a moment of reflection. Thank you. I also wanted to acknowledge and pay my respect to all traditional owners and First Nations that host our operations around the world.

Turning to our financials, our business is very robust. These attractive results shows fundamental strengths and stability. We have a very profitable business, a 20% return on capital employed despite $1.5 billion negative impact from lower commodity prices. Our overall production has grown. We have achieved underlying earnings of $11.8 billion and we will return $7.1 billion to our shareholders equating to a 60% payout on the ordinary dividend. And we have been investing with discipline to improve the health of our business for the long term while consistently delivering throughout the year.

Even as we have stepped up our capital expenditures, made acquisitions and paid out a large dividend, our net debt is virtually unchanged from 2022 at $4.2 billion. We are resilient and we are improving our operations even better, there is so much more to come. Our success starts with our clear understanding that we are a long term business. To deliver for the long term, we are relentlessly following our purpose and our four objectives of becoming best operator, achieving impeccable ESG credentials, excel in development and deepening our social license. We are also investing in the health of our people, our assets and our ore bodies.

Our culture drives performance, which is why we are developing a culture of trust based upon values of care, courage and curiosity. We are making progress, enabling our people to improve performance by deepening the rollout of the safe production system. At the same time, we are developing our portfolio to position our business for the future. We have really stabilized and improved our iron ore business, both in terms of short-term delivery and strengthening the long-term pipeline. We are progressing projects in the Pilbara, including Western Range and Rhodes Ridge. We are also achieving a balance across our portfolio, kicking copper into action with the ramp up of the underground production at Oyu Tolgoi in Mongolia. And we are evolving our aluminium business, providing our customers with recycled options through our Matalco joint venture.

We have a major challenge to repower our aluminium operations in Australia. Today, we announced a second agreement to provide some of the renewable power our Gladstone assets needs. And we are embedding co-design and co-management into our approach, working in partnerships with communities and indigenous people for mutual benefit. For example, collaborating with the Yindjibarndi Energy Corporation to explore opportunities for renewable energy projects in the Pilbara. Safe and empowered people, healthy assets and a balanced portfolio, all underpinned by social license. This is essential to achieve healthy, operational and financial performance and deliver attractive returns over the long-term.

I'll now hand over to Peter to take you through the financials. Thank you.

Peter Cunningham

Thanks, Jakob. Good morning, good evening everyone. I'm really pleased to have the opportunity to present this set of results, because we've had good operational momentum with a steady improvement in our performance in the Pilbara, where we delivered iron ore shipments at the upper end of our guidance. We also had a strong start to underground operations at Oyu Tolgoi and Kitimat has returned to full production, but we do still have a lot of work ahead of us. Firstly, we have some assets where we need to stabilize production in 2023 IOC and Kennecott in particular face some challenges. And secondly, we need to push on with the implementation of the safe production system to deliver continuous productivity improvement in our operations.

In summary, there is significant value remaining to be unlocked from our existing assets. On a net-net basis, our underlying EBITDA declined 9% to $23.9 billion. Cash flow from operations remained strong at $15.2 billion, but we do need to bring down inventory. Free cash flow was $7.7 billion after capital expenditure of $7.1 billion. Following dividends paid and funding of the Matalco transaction for just over $700 million, we ended the year with net debt of $4.2 billion, virtually unchanged from 2022. Overall, we delivered a healthy return on capital employed of 20% on underlying earnings of $11.8 billion. This underpinned our decision to continue our eight-year record of declaring a 60% payout on the ordinary dividend, equating to $7.1 billion....

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