Disclosure of initial application of standards or interpretations [abstract]

The basis of consolidation

The financial statements consolidate the accounts of Rio Tinto plc and

Rio Tinto Limited (together “the Companies”) and their respective

subsidiaries (together “the Group”, “we”, “our”) and include the Group’s

share of joint arrangements and associates.

We consolidate subsidiaries where either of the companies controls the

entity. Control exists where either of the companies has: power over the

entities, that is, existing rights that give it the current ability to direct the

relevant activities of the entities (those that significantly affect the

companies’ returns); exposure, or rights, to variable returns from its

involvement with the entities; and the ability to use its power to affect

those returns. A list of principal subsidiaries is shown in note 30.

A joint arrangement is an arrangement in which two or more parties

have joint control. Joint control is the contractually agreed sharing of

control such that decisions about the relevant activities of the

arrangement (those that significantly affect the companies’ returns)

require the unanimous consent of the parties sharing control. We have

two types of joint arrangements: joint operations (JOs) and joint

ventures (JVs). A JO is a joint arrangement in which the parties that

share joint control have rights to the assets and obligations for the

liabilities relating to the arrangement. This includes situations where the

parties benefit from the joint activity through a share of the output,

rather than by receiving a share of the results of trading. For our JOs,

shown in note 31, we recognise: our share of assets and liabilities;

revenue from the sale of our share of the output and our share of any

revenue generated from the sale of the output by the JO; and its share

of expenses. All such amounts are measured in accordance with the

terms of the arrangement, which is usually in proportion to our interest

in the JO. These amounts are recorded in our financial statements on

the appropriate lines. A JV is a joint arrangement in which the parties

that share joint control have rights to the net assets of the arrangement.

JVs are accounted for using the equity accounting method.

An associate is an entity over which we have significant influence.

Significant influence is presumed to exist where there is neither control

nor joint control and the Group has over 20% of the voting rights, unless

it can be clearly demonstrated that this is not the case. Significant

influence can arise where we hold less than 20% of the voting rights if

we have the power to participate in the financial and operating policy

decisions affecting the entity. It also includes situations of collective

control.

We use the term “equity accounted units” (EAUs) to refer to associates

and JVs collectively. Under the equity accounting method, the

investment is recorded initially at cost to the Group, including any

goodwill on acquisition. In subsequent periods, the carrying amount of

the investment is adjusted to reflect the Group’s share of the EAUs’

retained post-acquisition profit or loss and other comprehensive income.

Our principal JVs and associates are shown in note 32.

In some cases, we participate in unincorporated arrangements and

have rights to our share of the assets and obligations for our share of

the liabilities of the arrangement rather than a right to a net return, but

we do not share joint control. In such cases, we account for these

arrangements in the same way as our joint operations, with all such

amounts measured in accordance with the terms of the arrangement,

which is usually in proportion to our interest in the arrangement.

All intragroup transactions and balances are eliminated

on consolidation.

Ore Reserves and Mineral Resources

Mineral Reserves and Mineral Resources

A Mineral Resource is a concentration or occurrence of solid material of

economic interest in or on the Earth’s crust in such form, grade (or

quality), and quantity that there are reasonable prospects for eventual

economic extraction. An Mineral Reserve is the economically mineable

part of a measured or indicated Mineral Resource.

The estimation of Mineral Reserves and Mineral Resources requires

judgement to interpret available geological data and subsequently to

select an appropriate mining method and then to establish an extraction

schedule. At least annually, the Qualified Persons of the Group

(according to the Australasian Code for Reporting of Exploration

Results, Mineral Resources and Mineral Reserves (the JORC Code)),

estimate Mineral Reserves and Mineral Resources using assumptions

such as:

–available geological data;

–expected future commodity prices and demand;

–exchange rates;

–production costs;

–transport costs;

–close-down and restoration costs;

–recovery rates;

–discount rates; and

–renewal of mining licences.

With regard to our future commodity price assumptions, to calculate our

Mineral Reserves and Mineral Resources for our filing on the Australian

Securities Exchange and London Stock Exchange, we use prices

generated by our Strategy and Economics team (refer to the Climate

change section for further details about our pricing methodology). For

this Form 20-F, we use consensus price or historical pricing and comply

with subpart 1300 of Regulation S-K (SK-1300), instead of with the

JORC code.

We use judgement as to when to include Mineral Resources in

accounting estimates, for example, the use of Mineral Resources in our

depreciation policy as described in note 13 and in the determination of

the date of closure as described in note 14.

There are many uncertainties in the estimation process and

assumptions that are valid at the time of estimation may change

significantly when new information becomes available. New geological

or economic data or unforeseen operational issues may change

estimates of Mineral Reserves and Mineral Resources. This could

cause material adjustments in our financial statements to:

–depreciation and amortisation rates;

–carrying values of intangible assets and property, plant and

equipment;

–deferred stripping costs;

–provisions for close-down and restoration costs; and

–recovery of deferred tax assets.

Revenue by destination and product

Recognition and measurement

We recognise sales revenue related to the transfer of promised goods

or services when control of the goods or services passes to the

customer. The amount of revenue recognised reflects the consideration

to which the Group is or expects to be entitled in exchange for those

goods or services.

Sales revenue is recognised on individual sales when control transfers

to the customer. In most instances, control passes and sales revenue is

recognised when the product is delivered to the vessel or vehicle on

which it will be transported once loaded, the destination port or the

customer’s premises. There may be circumstances when judgement is

required based on the five indicators of control below:

–The customer has the significant risks and rewards of ownership

and has the ability to direct the use of, and obtain substantially all of

the remaining benefits from, the good or service.

–The customer has a present obligation to pay in accordance with

the terms of the sales contract. For shipments under the Incoterms

cost, insurance and freight (CIF)/carriage paid to (CPT)/cost and

freight (CFR), this is generally when the ship is loaded, at which

time the obligation for payment is for both product and freight.

–The customer has accepted the asset. Sales revenue may be

subject to adjustment if the product specification does not conform

to the terms specified in the sales contract but this does not impact

the passing of control. Assay and specification adjustments have

historically been immaterial.

–The customer has legal title to the asset. The Group usually retains

legal title until payment is received for credit risk purposes only.

–The customer has physical possession of the asset. This indicator

may be less important as the customer may obtain control of an

asset prior to obtaining physical possession, which may be the case

for goods in transit.

Revenue is principally derived from sale of commodities. We sell the

majority of our products on CFR or CIF Incoterms. This means that the

Group is responsible (acts as principal) for providing shipping services

and, in some instances, insurance after the date at which control of

goods passes to the customer at the loading port. The Group, therefore,

has separate performance obligations for freight and insurance services

that are provided solely to facilitate the sale of the products it produces.

Other Incoterms commonly used by the Group are free on board (FOB),

where the Group has no responsibility for freight or insurance once

control of the goods has passed at the loading port, and delivered at

place (DAP), where control of the goods passes when the product is

delivered to the agreed destination. For these Incoterms, there is only

one performance obligation, being the provision of product at the point

where control passes.

Within each sales contract, each unit of product shipped is a separate

performance obligation. Revenue is generally recognised at the

contracted price as this reflects the standalone selling price. Sales

revenue excludes any applicable sales taxes. Sales of copper

concentrate are stated net of the treatment and refining charges, which

will be required to convert it to an end product.

The Group’s products are sold to customers under contracts that vary in

tenure and pricing mechanisms, including some volumes sold on the

spot market. Pricing for iron ore is on a range of terms, the majority

being either monthly or quarterly average pricing mechanisms, with a

smaller proportion of iron ore volumes being sold on the spot market.

Certain of the Group’s products may be provisionally priced at the date

revenue is recognised and a provisional invoice issued; however,

substantially all iron ore and aluminium sales are reflected at final prices

in the results for the period. Provisionally priced receivables are

subsequently measured at fair value through the income statement

under IFRS 9 “Financial Instruments” as described in note 24. The final

selling price for all provisionally priced products is based on the price for

the quotational period stipulated in the contract. Final prices for copper

concentrate are normally determined between 30 and 120 days after

delivery to the customer. The change in value of the provisionally priced

receivable is based on relevant forward market prices and is included in

sales revenue. Refer to “Other revenue” within the sales by product

disclosure below.

Revenues from the sale of significant by-products, such as gold, are

included in sales revenue. Third-party commodity swap arrangements

principally for delivery and receipt of smelter-grade alumina are offset

within operating costs. The sale and purchase of third-party production

for own use or to mitigate shortfalls in our production are accounted for

on a gross basis with sales presented within revenue from contracts

with customers. Other operating income includes revenue incidental to

the main revenue-generating activities of the operations and is treated

as a credit to operating costs.

Typically, the Group has a right to payment before or at the point that

control of the goods passes, including a right, where applicable, to

payment for provisionally priced products and unperformed freight and

insurance services. Cash received before control passes is recognised as

a contract liability. The amount of consideration does not contain a

significant financing component as payment terms are less than one year.

We have a number of long-term contracts to supply products to

customers in future periods. Generally, revenue is recognised on an

invoice basis, as each unit sold is a separate performance obligation and

therefore the right to consideration from a customer corresponds directly

with our performance completed to date.

We do not disclose sales revenue from freight and insurance services

separately as we do not consider that this is necessary in order to

understand the impact of economic factors on the Group. Our Chief

Executive, the chief operating decision maker as defined under IFRS 8

“Operating Segments”, does not review information specifically relating

to these sources of revenue in order to evaluate the performance of

business segments and Group information on these sources of revenue

is not provided externally.

Taxation

Recognition and measurement

The taxation charge contains both current and deferred tax.

Current tax is the tax expected to be payable on the taxable income for the year calculated using rates applicable during the year. It includes

adjustments for tax expected to be payable or recoverable in respect of previous periods. Where the amount of tax payable or recoverable is

uncertain, we establish provisions based on either: the Group’s judgement of the most likely amount of the liability or recovery; or, when there is a

wide range of possible outcomes, a probability weighted average approach.

Deferred tax is calculated in accordance with IAS 12 using rates that have been enacted or substantively enacted at the balance sheet date. Where

the recognition of an asset and liability from a single transaction gives rise to equal and off-setting temporary differences, we had previously applied

the Initial Recognition Exemption allowed by IAS 12, and consequently recognised neither a deferred tax asset nor a deferred tax liability in respect

of these timing differences. Under the narrow-scope amendments to IAS 12, deferred tax assets and liabilities are required to be recognised in

respect of such temporary differences and prior year results have been restated accordingly (refer to section “New standards issued and effective in

the current year” on page 166 for details). Primarily, this applies to lease arrangements and changes in closure estimates which are capitalised.

Property, plant and equipment

Recognition and measurement

Property, plant and equipment is stated at cost, as defined in IAS 16 “Property, Plant and Equipment”, less accumulated depreciation and

accumulated impairment losses. The cost of property, plant and equipment includes, where applicable, the estimated close-down and restoration

costs associated with the asset.

Property, plant and equipment includes right-of-use assets arising from leasing arrangements, shown separately from owned and leasehold assets.

Once an undeveloped mining project has been determined as commercially viable and approval to mine has been given, further expenditure is

capitalised under “capital work in progress” together with any amount transferred from “Exploration and evaluation”. Once the project enters into an

operation phase, the amounts capitalised in capital work in progress are reclassified to their respective asset categories.

Costs incurred while commissioning new assets, in the period before they are capable of operating in the manner intended by management, are

capitalised unless associated with pre-production revenue. Development costs incurred after the commencement of production are capitalised to the

extent they are expected to give rise to a future economic benefit. Interest on borrowings related to construction or development projects is

capitalised, at the rate payable on project-specific debt if applicable or at the Group or subsidiary’s cost of borrowing if not. This is performed until

the point when substantially all the activities that are necessary to make the asset ready for its intended use are complete. It may be appropriate to

use a subsidiary’s cost of borrowing when the debt was negotiated based on the financing requirements of that subsidiary.

Depreciation of non-current assets

Property, plant and equipment is depreciated over its useful life, or over the remaining life of the mine, smelter or refinery if that is shorter and there

is no reasonable alternative use for the asset by the Group. Depreciation commences when an asset is available for use and therefore there is no

depreciation for capital work in progress.

Straight line basis

Assets within operations for which production is not expected to fluctuate significantly from one year to another or which have a physical life shorter

than the related mine are depreciated on a straight line basis as follows:


Type of Property, plant and equipment	Land and buildings		Plant and equipment
Type of Property, plant and equipment	Land	Buildings	Power-generating assets	Other plant and equipment
Depreciation profile	Not depreciated	5 to 50 years	See Power note below on page 195	3 to 50 years

The useful lives and residual values for material assets and categories of assets are reviewed annually and changes are reflected prospectively.

Units of production basis

For mining properties and leases and certain mining equipment, consumption of the economic benefits of the asset is linked to production. Except

as noted below, these assets are depreciated on the units of production basis.

In applying the units of production method, depreciation is normally calculated based on production in the period as a percentage of total expected

production in current and future periods based on mineral reserves and, for some mines, other mineral resources. Other mineral resources may be

included in the calculations of total expected production in limited circumstances where there are very large areas of contiguous mineralisation, for

which the economic viability is not sensitive to likely variations in grade, as may be the case for certain iron ore, bauxite and industrial mineral

deposits, and where there is a high degree of confidence that the other mineral resources can be extracted economically. This would be the case

when the other mineral resources do not yet have the status of ore reserves merely because the necessary detailed evaluation work has not yet

been performed and the responsible technical personnel agree that inclusion of a proportion of measured and indicated resources in the calculation

of total expected production is appropriate based on historical reserve conversion rates.

The required level of confidence is unlikely to exist for minerals that are typically found in low-grade ore (as compared with the above), such as

copper or gold. In these cases, specific areas of mineralisation have to be evaluated in detail before their economic status can be predicted with

confidence.

Sometimes the calculation of depreciation for infrastructure assets, primarily rail and port, considers measured and indicated resources. This is

because the asset can benefit current and future mines. The measured and indicated resource may relate to mines which are currently in production

or to mines where there is a high degree of confidence that they will be brought into production in the future. The quantum of mineral resources is

determined taking into account future capital costs as required by the JORC code. The depreciation calculation, however, applies to current mines

only and does not take into account future development costs for mines which are not yet in production. Measured and indicated resources are

currently incorporated into depreciation calculations in the Group’s Australian iron ore business.

13 Property, plant and equipment continued



	Key judgement - estimation of asset lives The useful lives of the major assets of a cash-generating unit are often dependent on the life of the orebody to which they relate. Where this is the case, the lives of mining properties, and their associated refineries, concentrators and other long-lived processing equipment are generally limited to the expected life of the orebody. The life of the orebody, in turn, is estimated on the basis of the life-of-mine plan. Where the major assets of a cash-generating unit are not dependent on the life of a related orebody, management applies judgement in estimating the remaining service potential of long-lived assets. Factors affecting the remaining service potential of smelters include, for example, smelter technology and electricity purchase contracts when power is not sourced from the Group, or in some cases from local governments permitting electricity generation from hydropower stations.



	Impact of climate change on our business - estimation of asset lives We expect there to be a higher demand for copper, aluminium, lithium and high-grade iron ore in order to meet demand for the minerals required to transition to a low carbon economic environment, consistent with the climate change commitments of the Paris Agreement. We expect this to exceed new supply to the market and therefore increase prices. Under the Aspirational Leadership scenario, the economic cut- off grade for our Mineral Reserves is expected to be lower; in effect we would mine a greater volume of material before the mines are depleted. We cannot quantify the difference this would make without undue cost as it would require revised mine plans, but for property, plant and equipment this increased volume of material would reduce the depreciation charge during any given period for assets that use the “Units of production” depreciation basis.

Close-down and restoration provisions

Recognition and measurement

The Group has provisions for close-down and restoration costs, which

include the dismantling and demolition of infrastructure, the removal of

residual materials and the remediation of disturbed areas for mines and

certain refineries and smelters. The obligation may occur during

development or during the production phase of a facility. These

provisions are based on all regulatory requirements and any other

commitments made to stakeholders. The provision excludes the impact

of future disturbance that is planned to occur during the life of mine, so

that it represents only existing disturbance as at the balance sheet date.

Closure provisions are not made for those operations that have no

known restrictions on their lives as the closure dates cannot be reliably

estimated; instead a contingent liability is disclosed. Refer to note 37 for

details. This applies primarily to certain Canadian smelters that have

indefinite-lived water rights from local governments permitting electricity

generation from hydropower stations and are not tied to a specific

orebody.

Close-down and restoration costs are a normal consequence of mining

or production, and the majority of close-down and restoration

expenditure is incurred in the years following closure of the mine,

refinery or smelter. Although the ultimate cost to be incurred is

uncertain, the Group’s businesses estimate their costs using current

restoration standards, techniques and expected climate conditions. The

costs are estimated on the basis of a closure plan, and are reviewed at

each reporting period during the life of the operation to reflect known

developments. The estimates are also subject to formal review, with

appropriate external support, at regular intervals.

The timing of closure and the rehabilitation plans for the site can be

uncertain and dependent upon future capital allocation decisions, which

involve estimation of future economic circumstances and business

cases. In such circumstances, the closure provision is estimated using

probability weighting of the different remediation and closure scenarios.

The initial close-down and restoration provision is capitalised within

“Property, plant and equipment”. Subsequent movements in the close-

down and restoration provisions for ongoing operations are treated as

an adjustment to cost within “Property, plant and equipment”. This

includes those resulting from new disturbances related to expansions or

other activities qualifying for capitalisation; updated cost estimates;

changes to the estimated lives of operations; changes to the timing of

closure activities; and revisions to discount rates.

Changes in closure provisions relating to closed and fully impaired

operations are charged/credited to “Net operating costs” in the income

statement.

Where rehabilitation is conducted systematically over the life of the

operation, rather than at the time of closure, provision is made for the

estimated outstanding continuous rehabilitation work at each balance

sheet date and the cost is charged to the income statement.

The closure provision is represented by forecast future underlying cash

flows expressed in real terms at the balance sheet date. These are

discounted for the time value of money based on a long-term view of

low-risk market yields which includes a review of historic trends plus

risks and opportunities for which future cash flows have not been

adjusted, namely potential improvements in closure practices between

the reporting date and the point at which rehabilitation spend takes

place. The real-terms discount rate used is 2.0% (2022: 1.5%) which is

applied to all locations since we expect to meet closure cash flows

principally from US dollar revenues and financing, with activities co-

ordinated by the Group's central closure team.

To roll forward those real-terms cash flows between periods, we identify

local rates of inflation based on Producer Price Inflation (PPI) indices

and, together with the real-terms discount rate, unwind the discount

through the line “Amortisation of discount on provisions”, shown within

“Finance items” in the income statement. This nominal rate for cost

escalation in the current financial year is estimated at the start of each

half-year and applied systematically for six months. At the end of each

half-year we update the underlying cash flows for the latest estimate of

experienced inflation, if it differs materially from our forecast, for the

current financial year and record this as “changes to existing

provisions”. For operating sites this adjustment usually results in a

corresponding adjustment to property, plant and equipment and for

closed and fully impaired sites the adjustment is charged or credited to

the income statement.

In some cases, our subsidiaries make a contribution to trust funds in

order to meet or reimburse future environmental and decommissioning

costs. Amounts due for reimbursement from trust funds are not offset

against the corresponding closure provision unless payments into the

fund have the effect of passing the closure obligation to the trust.

Environmental costs result from environmental damage that was not a

necessary consequence of operations, and may include remediation,

compensation and penalties. Provision is made for the estimated

present value of such costs at the balance sheet date. These costs are

charged to “Net operating costs”, except for the unwinding of the

discount which is shown within “Amortisation of discount on provisions”.

Remediation procedures may commence soon after the time the

disturbance, remediation process and estimated remediation costs

become known, but can continue for many years depending on the

nature of the disturbance and the remediation techniques used.

Leases

Recognition and measurement

IFRS 16 applies to the recognition, measurement, presentation and disclosure of leases. Certain leases are exempt from the standard, including

leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources. We apply the scope exemptions in paragraphs 3(e)

and 4 of IFRS 16 and do not apply IFRS 16 to leases of any assets which would otherwise fall within the scope of IAS “38 Intangible Assets”.

A significant proportion of our lease arrangements relate to dry bulk vessels and office properties. Other leases include land and non-mining rights,

warehouses, ports, equipment and vehicles.

We recognise all lease liabilities and corresponding right-of-use assets on the balance sheet, with the exception of short-term (12 months or fewer)

and low-value leases, where payments are expensed as incurred. Lease liabilities are recorded at the present value of fixed payments; variable

lease payments that depend on an index or rate; amounts payable under residual value guarantees; and extension options expected to be

exercised. Where a lease contains an extension option that we can exercise without negotiation, lease payments for the extension period are

included in the liability if we are reasonably certain that we will exercise the option. Variable lease payments not dependent on an index or rate are

excluded from the calculation of lease liabilities at initial recognition. Payments are discounted at the incremental borrowing rate of the lessee,

unless the interest rate implicit in the lease can be readily determined. For lease agreements relating to vessels, ports and properties, non-lease

components are excluded from the projection of future lease payments and recorded separately within operating costs as services are being

provided. The lease liability is measured at amortised cost using the effective interest method. The right-of-use asset arising from a lease

arrangement at initial recognition reflects the lease liability, initial direct costs, lease payments made before the commencement date of the lease,

and capitalised provision for dismantling and restoration of the underlying asset, less any lease incentives.

We recognise depreciation on right-of-use assets and interest on lease liabilities in the income statement over the lease term. Repayments of lease

liabilities are separated into a principal portion (presented within financing activities) and an interest portion (which the Group presents in operating

activities) in the cash flow statement. Payments made before the commencement date are included within financing activities unless they in

substance represent investing cash flows, for example where pre-commencement cash flows are significant relative to aggregate cash flows of the

leasing arrangement.



	Other relevant judgements - lease assessment We have to apply judgement for certain contractual arrangements, such as renewable energy power purchase agreements (PPAs), in evaluating whether we have the right to obtain substantially all of the economic benefits from the use of the renewable energy assets, including the right to obtain physical energy these assets generate. Based on our evaluation, we determine whether an arrangement is a lease, an executory contract or a derivative. An immaterial amount was recognised as a lease at year end for a fixed component of the QMM renewable PPA. Amrun PPA is a lease, which has not yet commenced and is included in capital commitments (note 37).

Financial instruments and risk management

Recognition and measurement

We classify our financial assets into those held at amortised cost and those to be measured at fair value either through the profit and loss (FVTPL)

or through other comprehensive income (FVOCI) based on the business model for managing the financial assets and the contractual terms of the

cash flows.


Classification of financial asset	Amortised cost	Fair value through profit and loss	Fair value through other comprehensive income
Recognition and initial measurement	At initial recognition, trade receivables that do not have a significant financing component are recognised at their transaction price. Other financial assets are initially recognised at fair value plus related transaction costs.	The asset is initially recognised at fair value with transaction costs immediately expensed to the income statement.	The asset is initially recognised at fair value.
Subsequent measurement	Amortised cost using the effective interest method.	Fair value movements are recognised in the income statement.	Fair value gains or losses on revaluation of such equity investments, including any foreign exchange component, are recognised in other comprehensive income. Dividends are recognised in the income statement when the right to receive payment is established.
Derecognition	Any gain or loss on derecognition or modification of a financial asset held at amortised cost is recognised in the income statement.	Not applicable.	When the equity investment is derecognised, there is no recycling of fair value gains or losses previously recognised in other comprehensive income to the income statement.

Borrowings and other financial liabilities (including trade payables but excluding derivative liabilities) are recognised initially at fair value, net of

transaction costs incurred, and are subsequently measured at amortised cost.

24 Financial instruments and risk management continued

Financial risk management objectives

Our financial risk management objectives are:

–to have in place a robust capital structure to manage the organisation through the commodity cycle

–to allow our financial exposures, mainly commodity price, foreign exchange and interest rates to, in general, float with the market.

Our Treasury and Commercial teams manage the following key economic risks generated from our operations:

–capital and liquidity risk

–credit risk

–interest rate risk

–commodity price risk

–foreign exchange risk.

These teams operate under a strong control environment, within approved limits.

(i) Capital and liquidity risk

Our capital and liquidity risk arises from the possibility that we may not be able to settle or meet our obligations as they fall due. Refer to our capital

and liquidity section on page 204.

(ii) Credit risk

Credit risk is the risk that our customers, or institutions that we hold investments with, are unable to meet their contractual obligations. We are

exposed to credit risk in our operating activities (primarily from customer trade receivables); and from our investing activities that include government

securities (primarily US Government), corporate and asset-backed securities, reverse re-purchase agreements, money market funds, and balances

with banks and financial institutions. Refer to note 17, note 22 and note 23 for an understanding of the size of, and the credit risk related to, each

balance.

(iii) Interest rate risk

Our interest rate management policy is generally to borrow and invest at floating interest rates. However, we may elect to maintain a proportion of

fixed-rate funding after considering market conditions, the cost and form of funding and other related factors. After the impact of hedging, 68%

(2022: 77%) of our borrowings (including leases) were at floating rates. To understand how we manage interest rate risk, refer to note 20.

Post-retirement benefits

Description of plans

The Group operates a number of pension and post-retirement healthcare plans which provide lump sums, pensions, medical benefits and life

insurance to retirees. Some of these plans are defined contribution and some are defined benefit, with assets held in separate trusts, foundations

and similar entities.

Defined benefit pension and post-retirement healthcare plans expose the Group to a number of risks.


Uncertainty in benefit payments	The value of the Group’s liabilities for post-retirement benefits will ultimately depend on the amount of benefits paid out. This in turn will depend on the level of future pay increases, the level of inflation (for those benefits that are subject to some form of inflation protection) and how long individuals live.
Volatility in asset values	The Group is exposed to future movements in the values of assets held in pension plans to meet future benefit payments.
Uncertainty in cash funding	Movements in the values of the obligations or assets may result in the Group being required to provide higher levels of cash funding, although changes in the level of cash required can often be spread over a number of years. In some countries control over the rate of cash funding or over the investment policy for pension assets might rest to some extent with a trustee body or other body that is not under the Group’s direct control. In addition the Group is also exposed to adverse changes in pension regulation.

For these reasons, the Group has a policy of moving away from defined benefit pension provisions and towards defined contribution arrangements.

The defined benefit pension plans for non-unionised employees are closed to new entrants in all countries. For unionised employees, some plans

remain open.

The Group does not usually participate in multi-employer plans in which the risks are shared with other companies using those plans. The Group’s

participation in such plans is immaterial and therefore no detailed disclosures are provided in this note.

Pension plans

The majority of the Group’s defined benefit pension obligations are in Canada, the UK, the US and Switzerland. In Australia the main arrangements

are principally defined contribution in nature, but there are sections providing defined benefits linked to final pay. The features of the Group’s defined

benefit pension obligations are summarised as follows.


	Calculation of benefit	Regulatory requirements	Governing body
Canada	Linked to final average pay for non- unionised employees. For unionised employees linked to final average pay or to a flat monetary amount per year of service.	Regulatory requirements in the relevant provinces and territories (predominantly Quebec).	Pension committee, a number of members are appointed by the sponsor and a number appointed by plan participants. In some cases, independent committee members are also appointed.
UK	Linked to final pay, subject to an earnings cap.	Regulatory requirements that apply to UK pension plans.	Trustee board, a number of directors appointed by the sponsor and a number appointed by plan participants and an independent trustee director.
US	Linked to final average pay for non- unionised employees and to a flat monetary amount per year of service for unionised employees.	US regulations.	Benefit Governance Committee. Members are appointed by the sponsor.
Switzerland	Linked to final average pay.	Swiss regulations.	Trustee board. Members are appointed by the plan sponsor, by employees and by retirees.
Australia	Linked to final pay and typically paid in lump sum form.	Local regulations in Australia.	An independent financial institution. One third of the board positions are nominated by employers. Remaining positions are filled by independent directors and directors nominated by participants.

The Group also operates a number of unfunded defined benefit plans, which are included in the reported defined benefit obligations.

Post-retirement healthcare plans

Certain subsidiaries of the Group, mainly in the US and Canada, provide healthcare and life insurance benefits to retired employees and in some

cases to their beneficiaries and covered dependants. Eligibility for coverage is dependent upon certain age and service criteria. These arrangements

are unfunded, and are included in the reported defined benefit obligations.

Recognition and measurement

For post-employment defined benefit schemes, in accordance with IAS 19 “Employee Benefits”, local actuaries calculate the fair value of the plan

assets and the present value of the plan obligations using a variety of valuation techniques dependent on the type of asset or liability. The difference

is recognised as an asset or liability in the balance sheet.

Where appropriate, the recognition of assets may be restricted to the present value of any amounts the Group expects to recover by way of refunds

from the plan or reductions in future contributions. In determining the extent to which a refund will be available the Group considers whether any

third party, such as a trustee or pension committee, has the power to enhance benefits or to wind up a pension plan without the Group’s consent.

The current service cost, any past service cost and the effect of any curtailment or settlements and the interest cost less interest income on assets

held in the plans are recognised in the income statement. Actuarial gains/(losses) and returns from assets are recognised in other comprehensive

income.

The Group’s contributions to defined contribution plans are charged to the income statement in the period to which the contributions relate.

All amounts charged to the income statement in respect of these plans are included within “Net operating costs” or in “Share of profit after tax of

equity accounted units”, as appropriate.

Plan assets

The assets of the pension plans are invested predominantly in a diversified range of bonds, equities, property and qualifying insurance policies.

Consequently, the funding level of the pension plans is affected by movements in interest rates and also in the level of equity markets. The Group

monitors its exposure to changes in interest rates and equity markets and also measures its balance sheet pension risk using a value at risk

approach. These measures are considered when deciding whether significant changes in investment strategy are required.

Investment strategy reviews are conducted on a periodic basis to determine the optimal investment mix. This is performed while bearing in mind the

risk tolerance of the Group and local sponsor companies, and the views of the Pension Committees and trustee boards who are legally responsible

for the plans’ investments. The assets of the pension plans may also be invested in qualifying insurance policies which provide a stream of

payments to match the benefits being paid out by the plans. This would therefore remove the investment, inflation and longevity risks.

In Canada, the UK and Switzerland, the Group works with the governing bodies to ensure that the investment policy adopted is consistent with the

Group’s tolerance for risk. In the US the Group has direct control over the investment policy, subject to local investment regulations.