Chairman’s statement A year of record results Overview Our commitment to operational excellence has seen us capitalise on improved conditions in the external environment. Sustainable development As the world becomes more reliant on the metals and minerals we produce, we are increasingly challenged to grow and to nd new, more ef cient ways of providing our markets with the raw materials they demand. And as we grow, we are able to share more of the sustainable bene ts of our activities with those around us. Rio Tinto’s commitment to sustainable development permeates our entire business. It is integral to our daily operations, to our legacy, and to our future. By maintaining our reputation as a responsible employer, neighbour, partner and citizen, we are constantly renewing our licence to operate. This approach gives us continuing access to the people, capital and resources we need. We are recognised as a leader in sustainable development, as evidenced by our continued listing on the FTSE4Good, the Dow Jones Sustainability Indexes and the Carbon Disclosure Leadership Index. Our reputation helps us forge robust alliances with other organisations that lead the way in sustainable development, such as the three year partnership we formed with the International Union for Conservation of Nature in 2010. By sharing knowledge and best practice with our partners, we seek to continue to deliver sustainable bene ts to the people and places where we work. On behalf of the board, I continue to lead the succession and routine refreshment of directors to ensure the most appropriate balance of skills and experience, and to drive effective decision making. Outlook Urbanisation and industrialisation in populous parts of the world will continue to provide a strong platform for increasing demand for metals and minerals. Although long term fundamentals for growth are strong, there are downside risks in the short term, and potential for medium term volatility due to persistent economic imbalances. Financial systems remain fragile, particularly in OECD countries. The increase in sovereign debts, and government measures to address scal imbalances, are likely to temper short term growth. We constantly seek to assess the potential impact of these factors on the Group’s plans, and to enhance our capabilities to predict demand and understand our markets. Performance Jan du Plessis Rio Tinto had an outstanding 2010. After responding to the challenges of the global nancial crisis, and taking steps to stabilise and strengthen our organisation, we are now concentrating on, and delivering, operational excellence. This focus has allowed us to bene t from opportunities that have arisen in the more favourable external environment, and to deliver record results in 2010. The exemplary performance of Rio Tinto’s people was fundamental to our success in 2010. Their efforts enabled us in many cases to work our assets throughout the year at, or above, nameplate capacity, while also improving our safety performance. In 2010, we set a new Group record in the annual production of iron ore. We achieved record underlying EBITDA of US$26.0 billion, and record underlying earnings of US$14.0 billion, up 82 per cent and 122 per cent on 2009, respectively. Net earnings were US$14.3 billion compared with US$4.9 billion in 2009. We remain committed to ef cient capital management. It is our belief that the long term creation of shareholder value requires a balanced approach to investing in growth and returning excess capital to shareholders, while maintaining a strong balance sheet. Our con dence both in our own portfolio and in future demand Dividends US cents for our products has allowed us to increase our annual dividend by 20 per cent compared with our previous commitment. We are also proceeding with a US$5 billion share buy-back, which we intend to complete by the end of 2012, subject to market conditions. Our people’s commitment It is inspiring to see the way our global team of people works together and strives for ways to improve our collective performance. Throughout the year, their commitment, talent and integrity have led to the delivery of remarkable results. On behalf of the board, I would like to thank all of our people for their hard work during the past year. Our thanks also go to our shareholders, whose continued support of Rio Tinto has helped us achieve record levels of performance in 2010. Production, reserves and operations Improved global economy The world’s major developed economies gradually stabilised during 2010, in response to government scal and monetary stimulus packages. Most were experiencing renewed GDP growth by the third quarter of 2009. China saw a sharp rebound in GDP growth, up from an annualised rate of nearly six per cent in 2009 to over ten per cent in 2010. This economic stimulus has helped trade to recover from the low point of the global crisis, and thanks to our stronger balance sheet, we have been well positioned to bene t from this recovery. We have sharpened our focus on our programme of organic growth and, for 2011, we envisage continuing this focus, with capital expenditure set to increase to US$13 billion. We believe we are well prepared for the key challenges facing the mining industry as we grow to meet rising demand. We will need to overcome skills shortages as we compete for new talent not only with other mining companies, but also with other expanding sectors, such as oil and gas. This trend will become more apparent as we move into new, riskier geographies. There will be new technical challenges as we develop more remote and complex orebodies, and increased competition from new players in our sector. Although we anticipate continued volatility in our markets, we will need to look beyond the peaks and troughs of a cycle and be prepared to expand through volatile times. Governance and risk To achieve our vision of global sector leadership, we must continue to maintain the highest standards of corporate governance. These standards are underpinned by ethical guidance in the form of our global code of conduct, The way we work; the application of best practice; and continually striving for excellence to create value for our shareholders. Based upon our agreed strategic framework, Rio Tinto’s board supports and oversees the Group’s management in its delivery of sustained operational excellence as well as growth opportunities, whether organic or through prudent corporate activity. The board recognises that risk is an integral and unavoidable part of doing business and that while risk carries threats, it also offers opportunities. Our processes for handling risk effectively are embedded throughout our organisation and are essential for maintaining our competitive advantage. There is a more detailed discussion of risk management on page 24. Board succession planning is an essential component of effective corporate governance and the continued success of our business. In 2010, we strengthened our board through the appointment of two new non executive directors, Ann Godbehere and Robert Brown. We also saw two retirements from the board. Sir David Clementi, who was chairman of the Audit committee, stepped down in May 2010, as did David Mayhew. In accordance with a provision of the new UK Corporate Governance Code, all of the Directors will stand for re-election by shareholders annually with effect from the 2011 annual general meetings. As previously indicated, Yves Fortier, formerly chairman of the board of Alcan Inc and also Sir Rod Eddington, will not be standing for re-election by shareholders in 2011. Yves and Rod have each made signi cant contributions to the board during their tenure with Rio Tinto and I would like to express my personal appreciation of the tremendous support they have given to me over the years. Meanwhile, Andrew Gould, Senior Independent Director and chairman of the Remuneration committee, has announced that he will be leaving the Board at the conclusion of the 2012 annual general meetings. Governance Jan du Plessis, chairman Financial statements 108.00 (2009: 45.00) 111.23 111.22 108.00 85.07 45.00 Additional information 2006 2007 2008 2009 2010 The way we work 8 Rio Tinto 2010 Annual report Our global code of conduct www.riotinto.com 9 Overview The way we work de nes how we conduct ourselves as a business. It is underpinned by our values, our approach to sustainable development, and by effective corporate governance. Governance The role of the board Rio Tinto plc and Rio Tinto Limited have a common board of directors who are responsible for the Group’s success and accountable to shareholders for our performance. Consistent with accepted good practice, the board consists of a mix of executives and independent non executives, the majority being independent non executives. This combination balances innovative thinking with business knowledge and experience. The board has established committees responsible for audit, executive remuneration, executive and non executive succession, social and environmental matters and assisting the board to deliver its responsibilities. Each plays a vital role in underpinning how we work. To ensure their relevance and continuing adherence to best practice, the committees annually review their terms of reference. More detailed descriptions of the board and its committees are on pages 118 and 122. This focus on environmental stewardship also delivers nancial bene ts. For example by improving energy ef ciency we not only reduce our environmental impact, we also reduce our operating costs. Social wellbeing is another fundamental aspect of our approach to sustainable development. This involves providing a safe and healthy workplace in which people, treated with fairness and decency at all times, can develop their full potential. And going beyond the workplace, our idea of social wellbeing extends to our neighbours. With them, we seek long term partnerships characterised by the mutual respect that leads to trust. However, good intentions are never enough. So for us strong governance systems are a vital part of putting sustainable development into practice. These systems ensure that we continue to manage our business with openness and accountability. Performance Chairman’s introduction Four values de ne Rio Tinto: accountability, respect, teamwork and integrity. They guide everything we do and are expressed through the principles and standards of conduct as set out in a global code of conduct called The way we work (available on our website at www.riotinto.com/library). The way we work de nes the way we manage the economic, social, political, environmental and governance challenges of our operations. It also frames a uni ed approach to complying with the regulatory obligations of our stock exchange listings in the UK, Australia and the US. Everyone in the Group is required to take training on The way we work. But most important of all, our values help the Group to ful l our commitment to shareholders to maximise total returns whilst also ful lling our commitment to contribute to sustainable development. This is because, as a company with a reputation for acting responsibly, we will be welcome as investors, partners and members of the local community wherever in the world we operate. This will hold true even as expectations and regulations surrounding corporate governance change following the global nancial crisis and our business evolves. We regularly review our practices to make sure they are aligned with changing regulations and that they continue to support the principles and values contained in The way we work. Values Our reputation stems from our four core values, which de ne the essence of who we are and who we will be: accountability, respect, teamwork and integrity. The rst of these values – accountability – is about taking ownership of our performance and decisions, and the impact that they have on the business. We also support the accountability that others have in their own areas of work. We demonstrate respect through our approach to sustainable development, and by recognising our people’s contributions to the business. We care for each other’s health, safety and wellbeing. By working as a team, we can focus our collective efforts on where they deliver the best outcome for the Group. We believe good team members trust in the commitment and capability of others. And nally, we work with integrity, treating all our stakeholders with fairness, honesty and openness. Production, reserves and operations Managing risk Rio Tinto recognises that risk is an integral component of its business, and that it is characterised by both threat and opportunity. The Group fosters a risk aware corporate culture in all decision making. Through skilled application of high quality, integrated risk analysis and management, we enhance opportunities and reduce threats, and so achieve and maintain competitive advantage. The Group’s Risk standard guides the process by providing an overall methodology and structure for the handling of risk within the organisation. The Group seeks to provide the board and senior management with a consistent, Group wide perspective of the key risks. Reports are submitted to the board twice per year and include assessment of the likelihood and impact if risks materialise, along with risk management initiatives. Governance Jan du Plessis, chairman Sustainable development As a company, we naturally meet the needs of customers, but we seek to do this without compromising the ability of future generations to meet their needs. That is what we mean by sustainable development. It is good business as well as good sense. Our continuing nancial success depends on the Group’s ability to gain access to the land, people and capital we need. To do that, we put our economic, social, environmental and technical expertise to work to harness these resources. This process creates prosperity that is shared among shareholders, employees, communities, governments and business partners. But there is more to it than that. Sustainable development also demands rigorous environmental stewardship. If we cannot always prevent harm, we can minimise and remediate any negative environmental effects of the Group’s operations. To ensure this, we have developed high standards that we maintain by implementing a wide range of practical programmes. These apply to issues that include air quality, ecosystems, biodiversity, climate change, the use of energy, land and water, waste disposal and facility closures. p114 p24 p29 Financial statements Governance op Va lu S u stain a ble d The way we work es Related information online at www.riotinto.com www.riotinto.com/library www.riotinto.com/ourapproach Additional information ev el me Related sections within this report Report on corporate governance Risk management Sustainable development review nt Key performance indicators Measuring our performance 16 Rio Tinto 2010 Annual report www.riotinto.com 17 Overview Our key performance indicators (KPIs) give us a means to measure our nancial and sustainable development performance. Their relevance to our strategic drivers, and our performance against these measures in 2010, is explained on these pages. The Group’s performance against each KPI is covered in more detail in later sections of this Annual report. Explanations of the actions taken by management to maintain and improve performance against each KPI support the data. KPIs used as a key measure in the remuneration of executives are identi ed with this symbol: See the Remuneration report on p.128 2006 2007 2008 2009 KPI trend data All injury frequency rate (AIFR) Per 200,000 hours worked Including former Alcan Underlying earnings (a) (b) US$ millions Total shareholder return (TSR) % Net debt (a) US$ millions Capital expenditure (a) (c) US$ millions Operating cash ows (a) US$ millions Dividends from equity accounted units Cash ow from consolidated operations GHG emissions intensity Indexed relative to 2008 Performance Including former Alcan 1.21 1.09 0.95 0.81 0.66 7,338 7,443 6,298 10,303 13,987 172.8 45,191 38,672 23,530 8,488 20,668 19,195 22,126 110.9 110.2 111.3 100.0 92.5 96.3 92.8 4,968 7.4 32.6 18,861 3,988 5,356 4,553 12,569 10,923 10,805 9,196 13,834 13,224 Production, reserves and operations (71.5) 2,437 4,284 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Relevance to strategic drivers Our commitment to zero harm means that the AIFR is one of the Group’s most important non nancial KPIs. Safety is a leading indicator of management performance. It is central to our focus on operational excellence and our licence to operate. A reputation for being a safe employer and neighbour helps us to gain access to the people and resources we need. Underlying earnings is a measure that provides insight into the underlying business performance of the Group’s operations and is the key nancial performance indicator used across the Group. This KPI provides insight to cost management, performance ef ciency and production growth. It is therefore an indicator of nancial and operational excellence and growth. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 of the 2010 nancial statements. TSR measures the Group’s performance in terms of shareholder wealth generation through dividends and changes in the share price. As a measure of how we maximise shareholder return, this KPI measures our performance against our strategy as a whole. Relative TSR is also monitored, which gives insight into our performance against our peers. A strong balance sheet gives us resilience in a volatile global economy. Net debt is a measure of how we are managing our balance sheet and capital structure, and is closely linked to our nancial and operational excellence strategic driver. Our capital expenditure KPI connects to our growth strategic driver. It measures our level of investment in protecting and maintaining our existing assets, as well as our investment in the growth projects that will be our future Tier 1 operating assets. The geographic distribution of our capital expenditure is also a measure of how we are globalising the business. Operating cash ow is a complementary measure to underlying earnings. It is employed as a measure of business performance and links to two of our strategic drivers: growth, and nancial and operational excellence. We use greenhouse gas (GHG) emissions intensity as a KPI because of the urgent need for climate action, and because it is one of the most widely recognised environmental issues. The KPI links to our licence to operate and our technology and innovation work, which are key drivers of our strategy. Governance De nition AIFR is calculated based on the number of injuries per 200,000 hours worked. This includes medical treatment cases, restricted work day and lost day injuries for employees and contractors. TSR combines share price appreciation and dividends paid to show the total return to the shareholder. Net debt is calculated as: the net total of borrowings, cash and cash equivalents, other liquid resources and derivatives related to net debt. Capital expenditure comprises the net cash out ow on purchases less disposals of property, plant and equipment, capitalised evaluation costs and purchases less disposals of other intangible assets. Operating cash ow represents the cash generated by the Group’s operations, before payment of interest, taxes, capital expenditure, and cash ows relating to nancing activities. The measure is equivalent to “cash ows from operations” in the Group cash ow statement. Operating cash ows, including dividends from equity accounted units, were US$23,530 million, 70 per cent higher than 2009 primarily as a consequence of higher commodity prices. Our GHG emissions intensity measure is the change in total GHG emissions per unit of commodity production relative to a base year. Total GHG emissions are direct emissions plus emissions from imports of electricity minus electricity and steam exports and net carbon credits purchased from, or sold to, recognised sources. Since 2008 our GHG emissions intensity has reduced by 3.7 per cent. This is largely a result of the Ningxia aluminium smelter divestment in 2009. The impact of closure or reduced production at older aluminium smelters that had low GHG emitting power sources offset some intensity reductions achieved during 2009. Performance Our AIFR has improved 39 per cent over the last ve years, with an 18 per cent improvement from 2009. Underlying earnings in 2010 of US$13,987 million were US$7,689 million above the comparable measure for 2009. This was largely due to the strong recovery in prices during the year. The Group’s average total shareholder return for the year ended 31 December 2010 was 32.6 per cent re ecting a combination of strong commodity markets and excellent operational performance. These translated into higher operating cash ows which, together with divestment proceeds, enabled the Group to pay down US$14.6 billion of debt during the year and pay dividends totalling US$1.8 billion. During 2010, net debt decreased from US$18.9 billion to US$4.3 billion due to strong operating cash ows and proceeds from the divestment programme. Net debt to total capital was signi cantly reduced to 6.2 per cent at 31 December 2010, compared with 29.1 per cent at 31 December 2009. Capital expenditure was US$4,553 million in 2010, a decrease of US$803 million from 2009. Capital expenditure included the Brockman 4 iron ore mine development in Western Australia, the expansion of the Yarwun alumina re nery, the commissioning of the Clermont coal mine and the extension and expansion of the Kestrel coking coal mine. Financial statements Additional information More information on p.31 Notes (a) The accounting information in these charts is drawn up in accordance with EU IFRS. (b) Underlying earnings is the key nancial performance indicator which management uses internally to assess performance. It is presented here a measure of earnings to provide greater understanding of the underlying business performance More information on p.250 More information on p.137 More information on p.199 Notes (c) More information on p.252 More information on p.159 More information on p.34 of the Group’s operations. Items excluded from net earnings to arrive at underlying earnings are explained in note 2 to the 2010 nancial statements. Both net earnings and underlying earnings deal with amounts attributable to the owners of Rio Tinto. However, EU IFRS requires that the pro t for the year reported in the income statement should also include earnings attributable to non-controlling interests in subsidiaries. Amounts include 100 per cent of subsidiaries’ capital expenditures and Rio Tinto’s share of the capital expenditure of equity accounted units. Sustainable development review continued www.riotinto.com 23 22 Rio Tinto 2010 Annual report Overview Goals and targets Our safety goal is zero injuries and zero fatalities. Progress is measured through our all injury frequency rate (AIFR) per 200,000 hours worked. 30 per cent reduction in the rate of new cases of occupational illness per 10,000 employees between 2008 and 2013. Ten per cent reduction in the rate of employees per 10,000 employees exposed to an eight hour noise dose of more than 85 decibels between 2008 and 2013. Six per cent reduction in total greenhouse gas emissions intensity between 2008 and 2013. We are also targeting a further four per cent reduction by 2015, to deliver an overall ten per cent reduction. Six per cent reduction in our freshwater use per tonne of product between 2008 and 2013. Our diversity goal is to employ people based on job requirements that represent the diversity of our surrounding communities. We are targeting: • Women to represent 20 per cent of our senior management by 2015. • Women to represent 40 per cent of our 2015 graduate intake. • 15 per cent of our 2015 graduate intake to be nationals from regions where we are developing new businesses. All operations have in place locally appropriate, publicly reported social performance indicators that demonstrate a positive contribution to the economic development of the communities and regions where we work, consistent with the Millennium Development Goals, by 2013. Improving performance Declining performance Trend Progress to date 18 per cent reduction in our all injury frequency rate compared with 2009. 56 per cent reduction in the rate of new cases of occupational illness compared with 2008. 0.3 per cent increase in the rate of employees potentially exposed to an eight hour noise dose of more than 85 decibels compared with 2008. 3.7 per cent reduction in our total greenhouse gas emissions intensity compared with 2008. Our approach Group strategy on p.18 Social wellbeing Read more in the “Our approach” section of www.riotinto.com We are committed to providing a safe and healthy workplace for our employees where their rights and dignity are respected. We set out to build enduring relationships with our neighbours that demonstrate mutual respect, active partnership, and long term commitment. tal en m ship rd Sustainable development has been identi ed as an area crucial to the delivery of the Group’s long term strategy. The minerals and metals produced at our operations contribute to society’s needs, delivering nancial dividends for our shareholders, paying wages and salaries for our employees, and creating wealth to support community infrastructure, health care and education. Our activities also provide the means and opportunity to develop new approaches to the environmental and human development challenges confronting society, such as climate change and poverty. We recognise that some aspects of our activities can lead to unavoidable impacts, such as limiting options for the future use of land and water, impacts on local communities, and greenhouse gas emissions from our operations and the use of our products. We strive to minimise these impacts through good management of our operations. The extended timeframes associated with our operations from exploration, through development and operation to closure provide us with opportunities to plan, implement and deliver sustainable contributions to social wellbeing, environmental stewardship and economic prosperity, within our strong governance systems. Our continued licence to operate is subject to the ever increasing expectations of society. Consequently, we have developed and implemented a structured framework to ensure that we meet our goal of contributing to the global transition to sustainable development. This framework contains the “must have” building blocks, which must all work together to achieve leading performance and manage risk effectively. We are communicating and raising our awareness of our approach to our internal and external stakeholders. In 2010 we commenced a review of our approach to sustainable development to ensure it remains focused on the risks most relevant to delivering our business strategy. Env ir stew on a Ec pro on sp an m ce s ic om rity e Performance be l ing cia So l l we ern Gov yste s Safety We are progressing on our journey toward a zero harm culture where everyone knows that they make a difference and where all employees and contractors have the knowledge, competence and desire to work safely. We believe that all injuries are preventable and our goal is to achieve zero injuries and zero fatalities. Regrettably three people were fatally injured whilst working at Rio Tinto managed operations in 2010. These events occurred at the Iron Ore Company of Canada, as a result of a fall from height, at the Alcan Packaging plant in Indonesia, as a result of an electric shock, and at the Alcan Engineered Products Neuf Brisach operation in France, as a result of being struck by a falling object. We provided support and counselling to the families and workmates affected by these events and we have shared the lessons from these and other serious incidents across the Group. We measure progress toward our goal of zero injuries through the all injury frequency rate (AIFR), which includes data for employees and contractors. At the end of 2010 our AIFR was 0.66, an improvement of 18 per cent over the last year. Our lost time injury frequency rate has also improved and was 0.36 per 200,000 hours worked in 2010. Lower injury rates do not mean that serious incidents will not occur. We use signi cant potential incident reporting and remedial action closure measures to promote identi cation, investigation, management and sharing of lessons learnt from minor and near miss events with potentially fatal consequences. These metrics are linked to remuneration. Higher consequence, lower frequency safety events are managed through targeted process safety reviews and use of our Semi Quantitative Risk Assessment (SQRA) process. The risk reduction resulting from the SQRA process is used as a Group wide leading indicator for safety performance. 2.3 per cent increase in our freshwater use per tonne of product compared with 2008. Production, reserves and operations • Women represented 14 per cent of our senior management in 2010. • Women represented 27 per cent of our 2010 graduate intake. • Eight per cent of our 2010 graduate intake were nationals from regions where we are developing new businesses. Governance We collected data for the rst time in 2010. 20 per cent of our operations had locally appropriate, publicly reported social performance indicators in place in 2010. New target Sustainable development framework Financial statements Performance data Our sustainable development performance data are reported for calendar years and, unless otherwise stated, represent 100 per cent of the parameter at each managed operation, even though Rio Tinto may have only partial ownership. Data reported in previous years may be modi ed if veri cation processes detect material errors, or if changes are required to ensure comparability over time. Wherever possible, data for operations acquired prior to 1 October of the reporting period are included. Divested operations are included in data collection processes up until the transfer of management control. We report in line with the GRI G3 guidelines at Application level A+ and have implemented the International Council on Mining and Metals’ (ICMM) sustainable development framework (www.icmm.com) Further information on our data de nitions, our GRI checked report and our alignment with the ICMM sustainable development principles and supporting position statements can be found on our website. Targets Achieve leading performance Indicators & metrics Monitoring & reporting Management systems Leadership & accountability Strategies & standards Policies The way we work Effectively manage risks All injury frequency rate Per 200,000 hours worked Including former Alcan 0.66 (2009: 0.81) 1.21 1.09 0.95 0.81 0.66 Additional information 2006 2007 2008 2009 2010 30 Rio Tinto 2010 Annual report www.riotinto.com 31 www.blacksunplc.com © Black Sun Plc 2011 21
