29th Apr 2005 11:25
Rio Tinto PLC29 April 2005 Annual General Meeting Rio Tinto chairman Paul Skinner told shareholders today in Sydney, Australiathat 2004 had been a record year for the company. "Adjusted earnings in 2004 were a record US$2.2 billion underlining the qualityof our asset portfolio which has been developed over many years on the basis ofa long term commitment to shareholder value." The company has increased its dividend by 20 per cent to 77 US cents per share,reflecting the Board's confidence in the company's future growth prospects. Mr Skinner commented that continuing underlying growth in demand is expected in2005 in Rio Tinto's markets and the company has a substantial investmentprogramme under way. The chairman said during 2004 he had visited many of the Group's operatinglocations. "I have been impressed not only with the scale and complexity of the operationsthemselves but also with the skill and commitment of our management and people." Chief executive Leigh Clifford said Rio Tinto was benefiting from a very strongbusiness environment as developing countries, especially China, increased demandfor metals and minerals, and mature economies, including the US, enjoyedrelatively solid economic growth. "While we operate in a rapidly changing environment, I believe we are alert tothe challenges and have the team capable of responding to them all. We have manyoptions for investing in our future growth," he declared. Below is a transcript of both speeches. Opening remarks by the chairman, Paul Skinner "Good morning ladies and gentlemen. I am very pleased to welcome you to thisyear's Annual General Meeting. Directors Today we have three new colleagues standing for election. They are AshtonCalvert, former secretary of the Department of Foreign Affairs and Trade of theCommonwealth of Australia Richard Goodmanson, who is executive vice presidentand chief operating officer of DuPont in the US, and Vivienne Cox, executivevice president of BP for Integrated Supply and Trading and also for Gas Powerand Renewables, Richard was appointed on 1 December 2004 and Ashton and Vivienne were both appointed on 1 February 2005. Unfortunately, Richard Goodmanson, Vivienne Cox and Andrew Gould are unable tobe present today and they extend their apologies. We also announced recently that in September this year, Rod Eddington, who iscurrently chief executive of British Airways, will join the board. He willreturn to Australia later this year, following his retirement from BritishAirways. Rod will stand for election at next year's meeting. Each of these individuals adds to the overall skill and experience of the RioTinto boards, which is a vital underpinning of our high standard of corporategovernance. Maintaining a well qualified and effective board is an importantpriority - particularly for me as chairman. I would also like to take this opportunity of thanking our retiring directors,Sir Richard Giordano, Leon Davis and John Morschel, all of whom have beenoutstanding contributors both to the board and to the company's continuingsuccess. I should particularly like to thank Dick and Leon as deputy chairmenfor the support they gave me in my first year in office. Their long experienceof the Group was invaluable in the transition period. Rio Tinto has benefitedgreatly throughout their periods in office and we owe them a lot. On a sad note we were all shocked by the sudden death in January of Bob Adams,our executive director for Planning and Development. During 35 years of serviceBob was a key figure in building Rio Tinto into a leading international mininggroup. He was respected and liked by all who knew him and his wise counsel andadvice are sorely missed. Results Before we proceed with the formal part of the agenda, Leigh Clifford and I willsay a few words about Rio Tinto's business, our current projects and operations. Adjusted earnings in 2004 were a record 2.2 billion US dollars. The US dollaris our reporting currency and we will use this throughout the presentation.Earnings increased by more than 60 per cent over 2003, exceeding the previoushigh of 1.7 billion dollars achieved in 2001. An important factor is thestrength in metal and minerals demand across the world - China has been a majorfactor. Commodity prices were higher across the board in 2004 and the US dollarwas more stable against our main producing currencies than was the case in 2003. The results also underline the quality of our asset portfolio, which has beendeveloped over many years on the basis of a long term commitment to shareholdervalue. Total cash flow from operations, including dividends from joint ventures andassociates, was also a record at 4.4 billion dollars, 28 per cent higher than in2003. An active portfolio management programme, focused on the disposal of a number ofnon-core assets, generated an additional 1.5 billion dollars in cash. This hasfurther strengthened our balance sheet. Dividends Investments over recent years have created a solid platform for the future.This, coupled with a positive view of our growth prospects, gave the board theconfidence to increase our annual dividend to 77 cents per share for 2004, anincrease of 20 per cent from 2003. This means that the 2005 interim dividend payable in September can be expectedto be 38.5 cents per share. We intend to maintain our progressive dividend policy from this higher base. Thecurrent strength of the Group's cash flow means that, in addition to comfortablyfunding the current and planned investments, capital can be returned toshareholders without reducing our flexibility to pursue other developmentopportunities. Subject to market conditions, and of course shareholder approval, our intentionis to return up to 1.5 billion dollars of capital to shareholders during thecourse of this year and 2006 through a share buyback programme. We are takingthe first steps in this programme with an off market buyback of Rio TintoLimited shares in Australia. Details of that buyback were mailed to Rio TintoLimited shareholders two weeks ago. Sustainable development A sustainable business also requires commitment to social and environmentalperformance alongside delivery of consistently strong financial results. Whilemuch remains to be done in this area we are very encouraged by the progress wehave made. Our sustainable development programmes are responding positively to a range ofissues including biodiversity, climate change, HIV/AIDS and water usage. TheGroup's approach to social and environmental responsibility helps to sustain ourpipeline of project opportunities and established operations in many countries.It has a business case that I believe is compelling and brings benefits to allphases of our operations. Details of our 2004 results are set out in our year end publications, the Annualreport and financial statements, the Annual review and the Sustainabledevelopment review. Copies of these documents are available outside for anyonewho would like them. Outlook Regarding the outlook, we foresee continuing underlying demand growth for metalsand minerals in 2005. In this environment, we expect that prices for most metals and minerals willremain above the long term trend this year, although there may be some shortterm volatility. The future direction of the US dollar relative to our producingcurrencies remains an uncertainty and will inevitably have an impact onearnings. We are fortunate to have a set of high quality investment opportunities withinour existing portfolio and in 2005 and 2006 we will continue to invest at a highrate in our existing businesses. This will further strengthen our base for thefuture. We also have the financial strength to take advantage of other valuecreating opportunities that may arise. Thanks In 2004 I visited many of our operating locations. I have been impressed notonly with the scale and complexity of the operations themselves but the skilland commitment of our management and their people. I would therefore like to acknowledge today the hard work and dedication of theGroup's employees throughout the world in 2004. We value everyone'scontribution. Their commitment to Rio Tinto's core values underpins the strongresults they continue to deliver for you - our shareholders. Ladies and gentlemen, I believe Rio Tinto has an excellent portfolio of miningassets, to which we added further in 2004, and we are well positioned for thefuture. At this point let me ask Leigh to comment on our performance in 2004 and thefuture direction of the Group." Remarks by the chief executive, Leigh Clifford "Thanks Paul, and good morning ladies and gentlemen. Results As the chairman pointed out, 2004 was a very good year. Our six product groupsall increased earnings compared with the previous year. Iron ore earnings were 14 per cent higher than in 2003. We benefited here fromhigher prices and very strong demand - although we had to cope with extensivedisruptions early in the year from a major tropical cyclone. The Energy group enjoyed significantly better prices in the second half of theyear and the ramp up of production from the Hail Creek coking coal mine into astrong market proved very timely. The Industrial Minerals group enjoyed a much better year than in 2003 as aresult of higher prices and good operating performance. Looking forward, we seesigns of improvement in the titanium dioxide feedstock markets after severalyears of oversupply. The operating performance of Aluminium improved with higher prices and the earlystart up of the Comalco Alumina Refinery demonstrated the value of successfulproject management. The Copper group contribution nearly doubled, notwithstanding the absence ofearnings during most of the year from our interest in the Grasberg mine and thesale of non-core assets. Finally, in Diamonds, Diavik's first full year was a strong one, and in spite oflower output at Argyle, the group's earnings were 50 per cent higher. The overall result was the highest achieved by Rio Tinto, as you can see in thischart. The current market for metals and minerals is the most favourable from aproducer perspective for 20 years. As a result, several of our businesses arestretching their production limits to meet demand. This puts significantpressure on our people, plant and equipment. It is gratifying that in this climate, alongside our operational and financialachievements, we saw a further marked improvement in the Group's safety recordin 2004. Even so, our goal of zero injuries remains and there is much still tobe done. Costs Strong market conditions for our products have translated into high demand forthe services and consumables we use. This builds cost pressures on ourbusinesses as prices of these inputs rise. Higher input prices and costs are usual at this stage of the economic cycle. Tomeet the demands of our customers, we are pushing our assets harder than isoptimal for cost management. However, it makes sense from a value perspective,as the cost effects are more than offset by higher revenues. Costs were also impacted in 2004 by a few one-offs, including the restoration ofproduction capacity at Grasberg in Indonesia and the effects of cyclone Monty inWestern Australia. Strategy We keep our strategic direction under regular review and the board is fullyengaged in the process. Our prime focus is on mining large, long life, low costore bodies. We recognise that medium term growth will come largely from furtherdevelopment of assets we already own. Today's mining industry is highly competitive and Rio Tinto needs to improvecontinually in order to keep ahead. Our fundamental principles will not change,but we do contemplate some changes in emphasis. While historically the decentralised model of Rio Tinto has delivered enormousbenefits, to keep improving, we are putting greater emphasis on leveraging RioTinto's global scale and specialist skills. We need to continue to improve howwe operate, recognising that operational excellence and commercial acumen gohand in hand. To prepare for the way forward, in 2004 I announced a major reallocation ofproduct group responsibilities. With the retirement of David Klingner as head of Exploration and Chris Renwickas chief executive, Iron Ore, Tom Albanese moved to Copper and Exploration, SamWalsh to Iron Ore, Oscar Groeneveld to Aluminium, and Andrew Mackenzie wasrecruited to head Industrial Minerals. Preston Chiaro and Keith Johnson continue as chief executives of Energy andDiamonds respectively. Ian Smith, who was Comalco's managing director ofsmelting, takes over from John O'Reilly as head of Technology in May. Projects Capital spending on new projects has been rising steadily in the last few yearsas we have developed a number of high quality greenfield projects and some majorbrownfield extensions. In 2004, capital expenditure was 2.2 billion dollars. We expect capitalexpenditure to be of this order in 2005 and 2006, if not higher, depending onthe timing of project approvals. We have recently completed three development projects - Hail Creek, HIsmelt andthe Comalco Alumina Refinery - all in Australia. Currently we have ten othersunder way, and three more were approved late in 2004. In addition, we havedevelopment studies progressing on 15 more projects. Over the past year we have transferred five projects from exploration to theproduct groups where the necessary skills can be applied to take them through tothe next level of evaluation. Some of these are large and exciting projects, for example the deep undergroundResolution copper project in the US and the Simandou iron ore resource inGuinea, West Africa. These projects illustrate the magnitude of our growthpotential for the medium term. Our level of success reflects efforts we have made over a number of years and isa tangible result of our commitment to exploration. With a strong market, the outlook for our iron ore businesses remains exciting.The expansion of capacity in Western Australia at a cost of 1.3 billion dollarsis the largest single project investment we have made in recent times. The major elements of the programme are on track for completion by the end of2005 with the result that in Western Australia Rio Tinto expects to have amanaged capacity of over 170 million tonnes of iron ore per year. Yesterday we announced short term expansions at Tom Price and Marandoo and thedevelopment of Namuldi for a total of $290 million. The expansion is part of amajor capital expenditure programme in Western Australia. It includes the 200million dollar HIsmelt(R) iron making plant that is now being commissioned aftermore than 20 years of research and development. The success of the Diavik diamond project in Canada, where overall performancehas comfortably exceeded expectations, has prompted us to bring forwarddevelopment of a second orebody. Mining will commence in early 2008. Meanwhile astudy is also under way into the viability of underground mining. At Kennecott Utah Copper in the US we will extend the life of the Bingham Canyonopen pit with an additional pushback to access further ore. Divestments During 2004, we continued to pursue opportunities for asset disposals in apatient and disciplined manner - looking always to create additional value foryou, our shareholders. While retaining our joint venture interest in production from the Grasberg minein Indonesia, we sold our minority shareholding in Freeport-McMoRan Copper &Gold, receiving net proceeds of 882 million dollars. We derived further value from the sale of non-core assets in Sweden, Portugaland Brazil. Recently we announced the sale of our minority interest in the Labrador Iron Oreroyalty fund in Canada for 130 million dollars; we maintain our 58.7 per centinterest in the Iron Ore Company of Canada. Health, safety, environment & communities First class performance in the areas of health, safety, communities andenvironment remains a top priority for Rio Tinto. The Group's social and environmental programme saw further progress on manyfronts. However, at the Ranger uranium mine in Australia two environmental incidentsoccurred during 2004 that were unacceptable. Numerous changes to systems havebeen made and increased resources applied so that these shortcomings are notrepeated. Three subsequent Australian Government audits were satisfactorilycompleted. We continue to improve our understanding of the social and environmentalimplications of our activities. To improve consistency and to share good practices, we continue to developstandards and guidance to help our businesses to work more closely with localcommunities. In January, we responded to the Asian tsunami disaster by committing one millionAustralian dollars to the relief effort in countries where we are active,particularly Indonesia. Earlier this month, we announced a very significant China partnership with TheAustralian National University. The Rio Tinto - ANU China Partnership is aimedat stimulating Australia's business and academic study on China. A keycomponent is the establishment of the Rio Tinto Chair in Chinese Economy. Summary To sum up, Rio Tinto is benefiting from a very strong business environment asdeveloping countries, especially China, increase demand for metals and mineralsand mature economies, including the US, enjoy relatively solid economic growth. We operate in a rapidly changing environment. I believe we are alert to thechallenges and have the team capable of responding to all of them. We have many options for investing in our future growth and as always our focusremains on maximising value for shareholders. Our record financial performance under strong market conditions in 2004 enabledus to focus on capital management to achieve a balance between future investmentand rewards for shareholders. " 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 Mobile: +44 (0) 7730 418 385 Mobile: +61 (0) 408 360 101Investor Relations Investor Relations Nigel Jones Dave Skinner Office: +44 (0) 20 7753 2401 Office: +61 (0) 3 9283 3628 Mobile: +44 (0) 7917 227365 Mobile: +61 (0) 408 335 309 Richard Brimelow Susie Creswell Office: +44 (0) 20 7753 2326 Office: +61 (0) 3 9283 3639 Mobile: +44 (0) 7753 783 825 Mobile: +61 (0) 418 933 792 Website: www.riotinto.com-------------------------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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