Financial review
Balance sheet
Rio Tinto commissioned independent expert valuation consultants to advise on the fair values of Alcan's assets. As required under International Financial Reporting Standards (IFRS), the tangible and intangible assets of the acquired business have been uplifted to fair value. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. In accordance with IFRS 3 - Business Combinations, the provisional price allocations at acquisition have been revised to reflect revisions to fair value adjustments recorded in 2008. This led to an increase in goodwill of US$5.6 billion (see note 41 to the Full financial statements). Goodwill at 31 December 2008 was US$14.3 billion and that relating to equity accounted units was US$1.6 billion compared to US$21.1 billion and US$1.9 billion respectively at 31 December 2007. This decrease is due to an impairment charge of US$6.6 billion relating to goodwill that arose on the acquisition of Alcan that was tested for impairment for the first time on 31 October 2008.
Net debt decreased by US$6.5 billion over the period to US$38.7 billion. This movement was a result of free cash flow, asset disposals and other derivative and exchange movements. Net debt to total capital remained unchanged at 63 per cent at 31 December 2008 following the impairment charges and the decline of the Australian and Canadian dollars, and interest cover was ten times compared to 20 times in 2007.
In addition, the Group's share of the third party net debt of equity accounted units totalled US$1.0 billion at 31 December 2008. US$0.3 billion of this debt is with recourse to the Rio Tinto Group.
The Group had available at 31 December 2008 undrawn committed facilities of US$8.1 billion up to October 2010.
Provisions for post retirement benefit plans increased as a result of the fall in the value of assets held in the pension plans. This was offset, to some extent, by a fall in the value of the obligations resulting from higher discount rates and lower expected inflation. This increase in the provision resulted in a loss of US$1.3 billion being recognised directly in equity.
Net assets attributable to Rio Tinto shareholders decreased by US$4.1 billion. The decrease reflected profit after tax attributable to Rio Tinto shareholders of US$3.7 billion less US$1.9 billion of dividends. In addition, there was a negative currency translation effect of US$5.0 billion as the Australian dollar, the Canadian dollar and the Euro all weakened against the US dollar.
