Overview
Rio Tinto had an outstanding 2010. After responding to the challenges of the global financial 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 benefit 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 efficient 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 confidence both in our own portfolio and in future demand 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.
Improved global economy
The world’s major developed economies gradually stabilised during 2010, in response to government fiscal 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.
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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 benefit 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.
Sustainable development
As the world becomes more reliant on the metals and minerals we produce, we are increasingly challenged to grow and to find new, more efficient ways of providing our markets with the raw materials they demand. And as we grow, we are able to share more of the sustainable benefits 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 benefits to the people and places where we work.
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 in the risk management section.
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 significant 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.
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 fiscal 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.
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.
Jan du Plessis, chairman
