Annual Report 2021

Annual Report

Group highlights

0.40

All-injury frequency rate (2020: 0.37)

$63.5B

Consolidated sales revenues (2020: $44.6B)

Zero

Fatalities (2020: zero)

$25.3B

Net cash generated from operating activities (2020: $15.9B)

31.1Mt

Scope 1 and 2 greenhouse gas emissions (equity Mt CO2e) (2020: 31.5)

$37.7B

Underlying EBITDA (2020: $23.9B)

$21.1B

Profit after tax attributable to owners of Rio Tinto (net earnings) (2020: $9.8B)

21.6%

Women in our workforce (2020: 20.1%)

1040 cents

Total dividend per share (2020: 557 cents)

2021 figures

Simon Thompson

Chairman

We have set out a new strategy that seeks to re-establish Rio Tinto as a leader in an industry that has a uniquely important and challenging role to play in creating a sustainable and prosperous future for people and the planet.”

Simon Thompson
Jakob Stausholm

Jakob Stausholm

Chief Executive

2021 was a defining year as we set a new direction to take Rio Tinto forward. Our society and our company are both at a pivotal moment in history, with challenges and lots of hard work still ahead. But we are excited about the future.”

Peter Cunningham

Chief Financial Officer

We have an outstanding foundation of long-life assets, producing vital commodities for a decarbonising world. Our balance sheet strength and world-class assets mean that we can invest in growth and decarbonise at a faster pace, while continuing to pay attractive dividends in line with our policy.”

Peter Cunningham

Key performance indicators

We use a range of financial and non-financial metrics to measure Group performance against our four objectives: best operator, impeccable environmental, social and governance (ESG) credentials, excel in development, and social licence.

Alignment to our four objectives

 

  • All injury frequency rate (AIFR)
    per 200,000 hours worked

    Definition

    The number of injuries per 200,000 hours worked by employees and contractors at the operations that we manage. AIFR includes: medical treatment cases, restricted workday and lost-day injuries.

    Relevance to strategy and executive remuneration

    Our global workforce is the foundation of our business. Supporting our people and their safety is our number one priority; and essential to everything we do. We are committed to having a safe work environment for all our people. We focus on maintaining zero fatalities, preventing catastrophic events and reducing safety risk everywhere we work. We are a learning organisation enabling a safe, responsible and productive business that protects and cares for people. We continue to implement our safety maturity model which brings together the key elements to building a strong safety culture and leadership maturity.

    Our facilities developed improvement plans and continued to enhance their safety maturity throughout the pandemic-related challenges faced during 2021. We are focused and committed to strengthening our partnerships with industry and associated committees (eg ICMM), contracting partners and local communities with the priority of learning and sharing to protect everyone’s health, safety and wellbeing.

    Alignment to our four objectives

    • Best operator
    • Impeccable ESG credentials

    Associated risks

    • Operational
    • ESG

    Link to executive remuneration

    Included as a performance metric in the safety component of the short-term incentive plan.

    Our performance in 2021

    We achieved a third year in a row of zero fatalities and we had zero permanent damage injuries. Our all-injury frequency rate (AIFR) slightly increased to 0.40 from 0.37 in 2020. Fatigue, labour shortages and other pressures from COVID-19 have presented new challenges in our day-to-day operations and remind us that there is no room for complacency.

    Forward plan

    • Continue our critical risk management programme
    • Implement enhancements to the safety maturity model programme
    • Continue to implement our major hazard standards, including process safety, underground safety and tailings, and apply strong assurance processes
    • Innovate to reduce exposure to safety and health risks
  • Total shareholder return (TSR)1
    measured over the preceding five years (using annual average share price)

    Definition

    Combination of share price appreciation (using annual average share price) and dividends paid and reinvested to show the total return to the shareholder over the preceding five years.

    Alignment to our four objectives

    • Best operator
    • Impeccable ESG credentials
    • Excel in development
    • Social licence

    Associated risks

    • Strategic
    • Economic
    • ESG

    Relevance to strategy and executive remuneration

    Our strategy aims to maximise shareholder returns through the commodity cycle, and TSR is a direct measure of that.

    Link to executive remuneration

    Reflected in the long-term incentive plan, measured equally against the EMIX Global Mining Index and the MSCI World Index.

    Our performance in 2021

    TSR performance over the five-year period was driven principally by movements in commodity prices and changes in the global macro environment. Rio Tinto significantly outperformed both the EMIX Global Mining Index and the MSCI World Index over the five-year period.

    Forward plan

    We will continue to focus on generating the free cash flow from our operations. This allows us to return cash to shareholders (short-term returns) while investing in the business (long-term returns).

    1. The TSR calculation for each period is based on the change in the calendar-year average share prices for Rio Tinto plc and Rio Tinto Limited over the preceding five years. This is consistent with the methodology used for calculating the vesting outcomes for Performance Share Awards (PSA). The data presented in this chart accounts for the dual corporate structure of Rio Tinto.

  • Underlying earnings and underlying EBITDA
    $ millions

    Underlying earnings & underlying EBITDA

    Definition

    Underlying earnings represent net earnings attributable to the owners of Rio Tinto, adjusted to exclude items which do not reflect the underlying performance of the Group’s operations. These items are explained in note 2 of the financial statements.

    Underlying EBITDA represents profit before tax, net finance items, depreciation and amortisation. It excludes the EBITDA impact of the items mentioned above.

    Alignment to our four objectives

    • Best operator

    Associated risks

    • Economic
    • Operational
    • ESG

    Relevance to strategy and executive remuneration

    These financial KPIs measure how well we are managing costs, increasing productivity and generating the most revenue from each of our assets.

    Link to executive remuneration

    Underlying earnings are reflected in the short-term incentive plan; in the longer term, both measures influence TSR, which is the primary measure for the long-term incentive plan.

    Our performance in 2021

    Underlying earnings of $21.4 billion were $8.9 billion higher than in 2020. The underlying EBITDA of $37.7 billion was $13.8 billion higher than in 2020. The 58% increase in underlying EBITDA resulted from higher iron ore, aluminium and copper prices, partly offset by lower sales volumes and higher energy costs.

    Forward plan

    We will continue to drive superior margins and returns through our focus on becoming the best operator and unlocking full potential across our value chains.

  • Underlying return on capital employed (ROCE)
    %

    Definition

    Underlying return on capital employed (“ROCE”) is defined as underlying earnings excluding net interest divided by average capital employed (operating assets).

    Alignment to our four objectives

    • Best operator
    • Excel in development

    Associated risks

    • Strategic
    • Economic
    • Operational
    • ESG

    Relevance to strategy and executive remuneration

    Our portfolio of low-cost, long-life assets delivers attractive returns throughout the cycle and has been reshaped significantly in recent years. Underlying ROCE measures how efficiently we generate profits from investment in our portfolio of assets.

    Link to executive remuneration

    Underlying earnings, as a component of underlying ROCE, is included in the short-term incentive plan. In the longer term, underlying ROCE also influences TSR, which is included in the long-term incentive plan.

    Our performance in 2021

    Underlying ROCE increased 17 percentage points to 44% in 2021, reflecting the increase in underlying earnings driven by higher commodity prices, partially offset by an increase in capital employed due to capital expenditure.

    Forward plan

    We will continue to focus on maximising returns from our assets over the short, medium and long term. We will also maintain our disciplined and rigorous approach and invest capital only in projects that we believe will deliver returns that are well above our cost of capital.

  • Net cash generated from operating activities
    $ millions

    Definition

    Cash generated by our operations after tax and interest, including dividends received from equity accounted units and dividends paid to non-controlling interests in subsidiaries.

    Alignment to our four objectives

    • Best operator

    Associated risks

    • Economic
    • Operational
    • ESG

    Relevance to strategy and executive remuneration

    This KPI measures our ability to convert underlying earnings into cash.

    Link to executive remuneration

    Included in the short-term incentive plan; in the longer term, the measure influences TSR, which is included in the long-term incentive plan.

    Our performance in 2021

    Net cash generated from operating activities of $25.3 billion was 60% higher than 2020. This was primarily due to higher commodity prices, partially offset by higher taxes paid, higher dividends paid and an increase in working capital.

    Forward plan

    We will focus on effectively converting earnings into cash, underpinned by operational and commercial excellence, including our careful management of working capital.

  • Free cash flow
    $ millions

    Definition

    Free cash flow is defined as net cash generated from operating activities minus purchases of property, plant and equipment and intangibles and payments of lease principal, plus proceeds from the sale of property, plant and equipment and intangible assets.

    Alignment to our four objectives

    • Best operator
    • Excel in development

    Associated risks

    • Strategic
    • Economic
    • Operational
    • ESG

    Relevance to strategy and executive remuneration

    This KPI measures the net cash returned by the business after the expenditure of sustaining and growth capital. This cash can be used for shareholder returns, reducing debt and other investment.

    Link to executive remuneration

    Included in the short-term incentive plan; in the longer term, the measure influences TSR, which is included in the long-term incentive plan.

    Our performance in 2021

    Free cash flow increased by $8.3 billion to $17.7 billion in 2021, primarily due to the increase in net cash generated from operating activities. This was partially offset by an increase in replacement and development capital expenditure as we ramp up our projects.

    Forward plan

    We will focus on effectively converting earnings into cash, underpinned by operational and commercial excellence, including our careful management of working capital.

  • Net cash/(net debt)
    $ millions

    Definition

    Total borrowings plus lease liabilities less cash and cash equivalents and other liquid investments, adjusted for derivatives related to net debt (see note 23 of the financial statements).

    Alignment to our four objectives

    • Best operator
    • Excel in development

    Associated risks

    • Strategic
    • Economic
    • Operational
    • ESG

    Relevance to strategy and executive remuneration

    This measures how we are managing our balance sheet and capital structure. A strong balance sheet is essential for giving us flexibility to take advantage of opportunities as they arise, and for returning cash to shareholders.

    Link to executive remuneration

    Net cash/(debt) is, in part, an outcome of free cash flow, which itself is reflected in the short-term incentive plan. In the longer term, net cash/(debt) influences TSR, which is reflected in the long-term incentive plan.

    Our performance in 2021

    Net debt decreased by $2.2 billion to a net cash position of $1.6 billion. This reflects $17.7 billion of free cash flow in 2021, partially offset by $15.4 billion of cash returns to shareholders through dividends.

    Forward plan

    We will focus on effectively converting earnings into cash, underpinned by operational and commercial excellence, including our careful management of working capital.

  • Scope 1 and 2 greenhouse gas emissions
    (equity Mt CO2e)

    Prior to 2018 we reported our greenhouse gas emissions on a 100% managed basis.

    1. The 2018 figure is the baseline for our 2025 and 2030 emissions targets and has been adjusted for acquisitions and divestments.

    Definition

    Equity greenhouse gas emissions: equity share of Scope 1 and 2 emissions from managed and non-managed operations expressed in million metric tonnes of carbon dioxide equivalent.

    Alignment to our four objectives

    • Best operator
    • Impeccable ESG credentials
    • Excel in development
    • Social licence

    Associated risks

    • Strategic
    • ESG

    Relevance to strategy and executive remuneration

    Climate risks and opportunities have formed part of our strategic thinking and investment decisions for over two decades. We have put the net zero transition at the heart of our business strategy; combining actions to reduce greenhouse gas emissions from our assets with investments in commodities that enable the energy transition, so that we can provide products that will help our customers to decarbonise.

    Link to executive remuneration

    Climate change is included in our ESG metrics for executive remuneration with a weighting of 5% of the short-term incentive plan. In 2021, the business achieved the approval of 0.26Mt CO2e of abatement projects and exceeded the total 0.5Mt CO2e targeted for 2020 and 2021.

    Our performance in 2021

    Our absolute emissions in 2021 were 31.1Mt CO2e, 4% below our 2018 equity emissions baseline. The reductions achieved since 2018 are primarily the result of switching to renewable electricity contracts at Kennecott in the US and the Escondida mine in Chile (managed by BHP; Rio Tinto owns 30%), and also relate to unplanned operational disruptions in 2021 at Richards Bay Minerals in South Africa and the Kitimat aluminium smelter in Canada.

    Forward plan

    As part of our new Group strategy, we announced new targets in 2021 and aim to reduce absolute emissions by 15% by 2025 and by 50% by 2030. We are committed to reaching net zero emissions by 2050. Our decarbonisation roadmap to meet these targets is detailed in the Climate Action Plan section of our 2021 Climate Change Report.

  • Gender diversity

    Representation of women within our workforce

    2. Baseline reset with definition for 2020 to 2021 gender diversity.

    Definition

    Includes our total workforce based on managed operations (excludes the Group's share of non-managed operations and joint ventures)3.

    Alignment to our four objectives

    • Best operator
    • Impeccable ESG credentials
    • Social licence

    Associated risks

    • Strategic
    • ESG

    Relevance to strategy and executive remuneration

    Inclusion and diversity are imperative for the sustainable success of the business. Our sustained performance and growth rely on having workforce diversity that is representative of the communities in which we operate and having a workplace where people are valued for who they are and encouraged to contribute to their full potential.

    Link to executive remuneration

    In 2021, our target was to increase the proportion of women in our workforce by 2%. This target is included in our ESG metrics for executive remuneration, with a weighting of 5% of the short-term incentive plan.

    Our performance in 2021

    In 2021, we increased our representation of women by 1.5%, from 20.1% to 21.6%. This falls short of our 2% target. However, it is the largest increase in gender diversity in the past five years. The increases were distributed across all levels of the organisation, with senior leaders increasing from 26.1% to 27.4% and managers increasing by 1.7% to 31.9%.

    Forward plan

    Our target to increase the proportion of women in our workforce by 2% year on year will continue in 2022. We will keep promoting initiatives to support this target, including the Everyday Respect task force recommendations.

    3. In 2020, we updated our definition of our total workforce to include those employees who were unavailable for work (eg on parental leave) and temporary contractors.

    Note: less than 1% of the workforce gender is undeclared.

Form 20-F