Operating segments (Tables)

12 Months Ended

Dec. 31, 2018

Disclosure Of Operating Segments [Abstract]

The financial information by business unit provided on pages 249 to 251 of these financial statements provides additional voluntary disclosure which the Group considers useful to the users of the financial statements.

		2018			2017			2016
Gross sales revenue	US$m			US$m			US$m
Iron Ore		18,485			18,251			14,605
Aluminium		12,191			11,005			9,458
Copper & Diamonds		6,468			4,842			4,524
Energy & Minerals		5,697			7,764			6,734
Other Operations		9			10			8
Reportable segments total		42,850			41,872			35,329
Inter-segment transactions		(15	)		(15	)		(11	)
Product group total		42,835			41,857			35,318
Items excluded from underlying earnings		-			10			18
Gross sales revenue		42,835			41,867			35,336
Share of equity accounted unit sales and adjustments for intra-subsidiary/equity accounted units sales		(2,313	)		(1,837	)		(1,555	)
Consolidated sales revenue per income statement		40,522			40,030			33,781

Gross sales revenue includes the Group’s proportionate share of sales revenue of equity accounted units (after adjusting for sales to subsidiaries) of US$2,354 million (2017: US$1,859 million; 2016: US$1,585 million) which are not included in consolidated sales revenue. Consolidated sales revenue includes subsidiary sales of US$41 million (2017: US$22 million; 2016: US$30 million) to equity accounted units which are not included in gross sales revenue.

		2018			2017			2016
Capital expenditure	US$m			US$m			US$m
Iron Ore		1,288			1,201			868
Aluminium		1,373			1,436			916
Copper & Diamonds		2,150			1,622			1,441
Energy & Minerals		456			467			141
Other Operations		12			(35	)		(11	)
Reportable segments total		5,279			4,691			3,355
Other items		65			70			(46	)
Less: capital expenditure of equity accounted units		(500	)		(417	)		(651	)
Capital expenditure per financial information by business unit		4,844			4,344			2,658
Add back: proceeds from disposal of property, plant and equipment		586			138			354
Capital expenditure per cash flow statement		5,430			4,482			3,012

Capital expenditure for reportable segments comprises the net cash outflow on purchases less disposals of property, plant and equipment, capitalised evaluation costs and purchases less disposals of other intangible assets. The details provided include 100% of subsidiaries’ capital expenditure and Rio Tinto’s share of the capital expenditure of joint operations and equity accounted units.

		2018			2017			2016
Depreciation and amortisation	US$m			US$m			US$m
Iron Ore		1,682			1,645			1,645
Aluminium		1,122			1,199			1,250
Copper & Diamonds		1,317			1,452			1,601
Energy & Minerals		475			652			739
Other Operations		26			32			34
Reportable segments total		4,622			4,980			5,269
Other items		43			42			51
Less: depreciation and amortisation of equity accounted units		(650	)		(647	)		(526	)
Depreciation and amortisation per note 4		4,015			4,375			4,794

Product group depreciation and amortisation for reportable segments totals include 100% of subsidiaries’ depreciation and amortisation and Rio Tinto’s share of the depreciation and amortisation of equity accounted units. Rio Tinto’s share of the depreciation and amortisation charge of equity accounted units is deducted to arrive at depreciation and amortisation, excluding equity accounted units, as shown in note 4. These figures exclude impairment charges and reversals, which are excluded from underlying earnings.

		2018			2017			2016
Tax charge/(credit)	US$m			US$m			US$m
Iron Ore		2,819			2,871			2,005
Aluminium		532			543			171
Copper & Diamonds		118			48			(320	)
Energy & Minerals		511			652			331
Other Operations		(51	)		(84	)		(73	)
Reportable segments total		3,929			4,030			2,114
Other items		(276	)		(261	)		(191	)
Exploration and evaluation not attributed to product groups		(38	)		(36	)		(27	)
Net finance costs		(174	)		(364	)		(484	)
		3,441			3,369			1,412
Tax charge excluded from underlying earnings		801			596			155
Tax charge per income statement		4,242			3,965			1,567

Tax charge/(credit) excludes amounts relating to equity accounted units. Further information on the tax charge/(credit) excluded from underlying earnings is provided in the section “Underlying earnings”, below.

		2018			2017			2016
Underlying EBITDA	US$m			US$m			US$m
Iron Ore		11,325			11,520			8,526
Aluminium		3,095			3,423			2,472
Copper & Diamonds		2,776			1,904			1,387
Energy & Minerals		2,193			2,803			1,806
Other Operations		(70	)		(116	)		(95	)
Reportable segments total		19,319			19,534			14,096
Central pension costs, share-based payments and insurance		(128	)		(68	)		(34	)
Restructuring, project and one-off costs		(272	)		(177	)		(13	)
Central costs		(552	)		(491	)		(364	)
Exploration and evaluation not attributed to product groups		(231	)		(218	)		(175	)
Underlying EBITDA		18,136			18,580			13,510
Items excluded from underlying EBITDA		5,127			1,912			(687	)
EBITDA		23,263			20,492			12,823
Depreciation, amortisation and impairment charges in subsidiaries and equity accounted units		(4,691	)		(5,746	)		(5,466	)
Taxation and finance items in equity accounted units		(372	)		(272	)		(241	)
Profit on ordinary activities before finance items and tax		18,200			14,474			7,116

Notes to the 2018 financial statements
continued

2 Operating segments continued

		2018			2017			2016
Underlying earnings	US$m			US$m			US$m
Iron Ore		6,514			6,692			4,611
Aluminium		1,347			1,583			947
Copper & Diamonds		1,054			263			(18	)
Energy & Minerals		1,012			1,242			612
Other Operations		(102	)		(138	)		(88	)
Reportable segments total		9,825			9,642			6,064
Central pension costs, share-based payments and insurance		(90	)		(48	)		(24	)
Restructuring, project and one-off costs		(190	)		(124	)		(9	)
Central costs		(410	)		(311	)		(208	)
Exploration and evaluation not attributed to product groups		(193	)		(178	)		(147	)
Net finance costs		(134	)		(354	)		(576	)
Underlying earnings		8,808			8,627			5,100
Items excluded from underlying earnings		4,830			135			(483	)
Net earnings attributable to owners of Rio Tinto per income statement		13,638			8,762			4,617

Reconciliation of net earnings/(losses) to underlying earnings

							Non- controlling			Net			Net			Net
	Pre-tax ^(m)			Taxation			interests			amount			amount			amount
		2018			2018			2018			2018			2017			2016
Exclusions from underlying earnings	US$m			US$m			US$m			US$m			US$m			US$m
Impairment charges (note 6)		(132	)		25			3			(104	)		(481	)		(183	)
Net gains on consolidation and disposal of interests in businesses^(a)		4,622			(626	)		-			3,996			2,022			382
Exchange and derivative gains/(losses):
– Exchange gains/(losses) on US dollar net debt,
intragroup balances and derivatives^(b)		694			(136	)		(8	)		550			(488	)		516
– (Losses)/gains on currency and interest rate
derivatives not qualifying for hedge accounting^(c)		(59	)		11			-			(48	)		30			(12	)
– Gains/(losses) on embedded commodity derivatives not
qualifying for hedge accounting^(d)		288			(83	)		(3	)		202			(352	)		32
Losses from increases to closure estimates (non-operating and fully impaired sites) ^(e)		(376	)		41			-			(335	)		-			(282	)
Gain relating to surplus land at Kitimat ^(f)		602			(33	)		-			569			-			-
Changes in corporate tax rates in the US and France^(g)		-			-			-			-			(439	)		-
Onerous port and rail contracts^(h)		-			-			-			-			-			(329	)
Restructuring costs and global headcount reductions		-			-			-			-			-			(177	)
Rio Tinto Kennecott insurance settlement⁽ⁱ⁾		-			-			-			-			45			-
Tax provision^(j)		-			-			-			-			-			(380	)
Tax charge relating to expected divestments ^(k)		-			-			-			-			(202	)		-
Other exclusions^(l)		-			-			-			-			-			(50	)
Total excluded from underlying earnings		5,639			(801	)		(8	)		4,830			135			(483	)
Net earnings		18,167			(4,242	)		(287	)		13,638			8,762			4,617
Underlying earnings		12,528			(3,441	)		(279	)		8,808			8,627			5,100

(a)

On 10 May 2018, Rio Tinto and Alcoa announced they had launched a new joint venture, Elysis, to develop and commercialise a carbon-free aluminium smelting process. Rio Tinto’s interest in the joint venture has been accounted for using the equity method. The patents contributed and intellectual property licensed to the arrangement by Rio Tinto had no carrying value, and therefore a gain has been recognised for the fair value uplift on formation of the arrangement. This gain has been reduced so that it only represents the proportion contributed by outside shareholders, resulting in a pre-tax gain of US$171 million (US$141 million after tax). On 1 August 2018, a pre-tax gain of US$1,141 million (US$836 million after tax) was recognised on the sale of the Hail Creek coal mine and a pre-tax gain of US$1,010 million (US$724 million after tax) was recognised on the sale of the Kestrel underground coal mine. On 14 December 2018, a pre-tax gain of US$128 million (US$122 million after tax) was recognised on the sale of the Dunkerque aluminium smelter. On 21 December 2018, a pre-tax gain of US$2,146 million was recognised on the sale of Grasberg. No tax is payable on this gain. Amounts relating to the sale of undeveloped properties, Winchester South and Valeria, are included within underlying earnings.

In 2017, the net gain related mainly to the sale of Coal & Allied Industries Limited, which completed on 1 September 2017.

In 2016, the net gain related mainly to the sale of Rio Tinto’s 40% interest in the Bengalla Joint Venture on 1 March 2016 and the sale of the Lochaber assets in Scotland on 23 November 2016. This was partially offset by a loss on disposal of the 100% interest in Carbone Savoie on 31 March 2016.

(b)

Exchange gains/(losses) on external US dollar net debt and intragroup balances comprise of post-tax foreign exchange losses on US dollar denominated net debt in non-US dollar functional currency companies of US$386 million loss and post-tax gains of US$936 million on intragroup balances, primarily as a result of the Australian and Canadian dollars both weakening against the US dollar.

Net exchange gains in 2017 comprise post-tax foreign exchange gains of US$420 million on US dollar denominated net debt, and US$908 million losses on intragroup balances.

Net exchange gains in 2016 comprise post-tax foreign exchange gains of US$123 million on external US dollar denominated net debt, and US$393 million gains on intragroup balances, mainly as the Canadian dollar strengthened against the US dollar.

(c)

Valuation changes on currency and interest rate derivatives, which are ineligible for hedge accounting, other than those embedded in commercial contracts, and the currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional currency is not the US dollar.

(d)

Valuation changes on derivatives, embedded in commercial contracts, that are ineligible for hedge accounting, but for which there will be an offsetting change in future Group earnings. From 1 January 2018, all mark-to-market movements on commodity derivatives entered into with the commercial objective of achieving spot pricing for the underlying transaction at the date of settlement are now included within underlying earnings. In 2017 and previous years, valuation changes on this type of commodity derivative were excluded from underlying earnings. The impact of this change on the reported comparatives is insignificant, and therefore the comparatives have not been restated.

(e)

The prefeasibility study for the Argyle mine closure was completed in late 2018, resulting in an increase to the closure provision. As the assets at Argyle have been fully impaired, this increase has not been capitalised and has instead been recognised in the income statement. The impairment charge in respect of Argyle recognised in 2017 (see note 6) was based on preliminary findings from the prefeasibility study. On this basis, the charge arising from the finalisation of this study in 2018 of US$134 million (US$93 million after tax) has been excluded from underlying earnings.

On 6 December 2018, Energy Resources of Australia (ERA) (68% owned by Rio Tinto and listed on the Australian Stock Exchange) announced a likely increase to its closure provision of A$296 million pending finalisation of the Ranger Project Area closure feasibility study. The final assessment has indicated an increase equivalent to US$242 million. As the assets of ERA have been fully impaired, this increase has not been capitalised and has instead been recognised in the income statement. There is no tax impact in respect of this item.

In 2016, the closure provision for non-operating and legacy operations increased mainly due to the Gove alumina refinery in Northern Territory, Australia where operations have been curtailed since May 2014. The provision was updated based on the cost estimates from the studies. Future revisions to the closure cost estimate during the study periods (including the next stage of feasibility study) will continue to be excluded from underlying earnings as the site operating assets have been fully impaired.

(f)

In November 2018, Rio Tinto completed the lease and sale of a wharf and land in Kitimat. This resulted in a pre-tax gain of US$549 million on disposal of Property, plant and equipment and Other income of US$53 million (total impact of US$569 million after tax). This has been excluded from underlying earnings on the grounds of materiality.

(g)	In 2017, deferred tax assets were remeasured to reflect lower corporate income tax rates in the US and France as a result of tax legislation changes substantively enacted in December 2017.

(h)

In 2016, a review of the infrastructure capacity requirements in Queensland, Australia, confirmed that it was no longer likely that Rio Tinto would utilise the Abbot Point Coal Terminal and associated rail infrastructure capacity contracted under take or pay arrangements, and agreement was reached with Adani, the owner of the port, to relinquish that capacity. Accordingly, an onerous contract provision was recognised based on the net present value of expected future cash flows for the port and rail capacity discounted at a post-tax real rate of 2%, resulting in a post-tax onerous contract charge of US$329 million.

(i)

In 2017, Rio Tinto received the final settlement on the insurance claims related to the 2013 slide at Rio Tinto Kennecott’s Bingham Canyon mine. The amounts excluded from underlying earnings were consistent with the previous excluded losses to which they related, in line with the treatment of the 2013 and 2015 settlement payments.

(j)

Tax provision includes amounts provided for specific tax matters for which the timing of resolution and potential economic outflow are uncertain. During 2016, provision was made in relation to matters under discussion with the Australian Taxation Office (ATO) in relation to the transfer pricing of certain transactions between Rio Tinto entities based in Australia and the Group’s commercial centre in Singapore for the period since 2009.

(k)	In 2017, deferred tax assets were derecognised as a result of revised profit forecasts in France due to the expected divestments of Dunkerque and ISAL. The Dunkerque divestment completed in 2018.

(l)

Other credits and charges that, individually, or in aggregate if of similar type, are of a nature or size to require exclusion in order to provide additional insight into underlying business performance. In 2016, other exclusions included costs related to multiple transformation projects and the recuperation of capital losses against capital gains on divestment.

(m)	Exclusions from underlying earnings relating to equity accounted units are stated after tax and are included in the column “Pre-tax”.