2016 financial statements STRATEGIC REPORT DIRECTORS’ REPORT Contents Page Page Primary financial statements Capital and reserves Group income statement 110 Note 27 – Share capital – Rio Tinto plc 147 Group statement of comprehensive income 111 Note 28 – Share capital – Rio Tinto Limited 147 Group cash flow statement 112 Note 29 – Other reserves and retained earnings 148 Group balance sheet 113 Group statement of changes in equity 114 Additional disclosures Reconciliation with Australian Accounting Standards 115 Note 30 – Financial instruments and risk management 149 Outline of dual listed companies structure and basis of Note 31 – Contingencies and commitments 157 financial statements 115 Note 32 – Average number of employees 159 Note 33 – Principal subsidiaries 160 Notes to the 2016 financial statements Note 34 – Principal joint operations 162 Group income statement and cash flow statement Note 35 – Principal joint ventures 163 Note 1 – Principal accounting policies 116 Note 36 – Principal associates 164 Note 2 – Operating segments 128 Note 37 – Purchases and sales of subsidiaries, joint ventures, Note 3 – Operating segments – additional information 131 associates and other interests in businesses 165 Note 4 – Net operating costs (excluding items shown separately) 132 Note 38 – Directors’ and key management remuneration 165 Note 5 – Employment costs 132 Note 39 – Auditors’ remuneration 166 Note 6 – Impairment charges and reversals 133 Note 40 – Related-party transactions 167 Note 7 – Share of profit after tax of equity accounted units 134 Note 41 – Exchange rates in US$ 167 Note 8 – Finance income and finance costs 134 Note 42 – Bougainville Copper Limited (BCL) 167 FINANCIAL STATEMENTS Note 9 – Taxation 135 Note 43 – Events after the balance sheet date 167 Note 10 – Earnings/(loss) per ordinary share 136 Note 44 – Share-based payments 168 Note 11 – Dividends 136 Note 45 – Post-retirement benefits 170 Note 46 – Rio Tinto Limited parent company disclosures 176 Group balance sheet Note 47 – Related undertakings 177 Note 12 – Goodwill 137 Note 13 – Intangible assets 138 Rio Tinto plc company information 195 Note 14 – Property, plant and equipment 139 Note 15 – Investments in equity accounted units 140 Rio Tinto financial information by business unit 199 Note 16 – Inventories 141 Note 17 – Deferred taxation 141 Australian Corporations Act – Summary of ASIC relief 204 Note 18 – Trade and other receivables 142 PRODUCTION METALS AND MINERALS Note 19 – Assets and liabilities held for sale 143 Directors’ declaration 205 Note 20 – Other financial assets (including non-quasi equity loans to equity accounted units) 143 Auditor’s independence declaration 206 Note 21 – Cash and cash equivalents 143 Note 22 – Borrowings and other financial liabilities 144 Independent auditors’ report of PricewaterhouseCoopers LLP to Note 23 – Capitalised finance leases 145 the members of Rio Tinto plc and PricewaterhouseCoopers to the members of Rio Tinto Limited 207 Note 24 – Consolidated net debt 145 Note 25 – Trade and other payables 146 Financial summary 2007-2016 215 Note 26 – Provisions (including post-retirement benefits) 146 Summary financial data in Australian dollars, sterling and US dollars 217 ADDITIONAL INFORMATION 2016 Annual report riotinto.com 109 Group income statement Years ended 31 December 2016 2015 2014 Note US$m US$m US$m Consolidated operations Consolidated sales revenue 2,3 33,781 34,829 47,664 Net operating costs (excluding items shown separately) 4 (26,799) (27,919) (33,910) Impairment charges net of reversals 6 (249) (2,791) (1,062) Net gains/(losses) on disposal of interests in businesses 2,37 515 64 (563) Exploration and evaluation costs 13 (497) (576) (747) Profit/(loss) relating to interests in undeveloped projects 13 44 8(36) Operating profit 6,795 3,615 11,346 Share of profit after tax of equity accounted units 7 321 361 625 Impairment reversals of investments in equity accounted units after tax 6 – –589 Profit before finance items and taxation 7,116 3,976 12,560 Finance items Net exchange gains/(losses) on external debt and intragroup balances 24 611 (3,538) (1,995) Net losses on derivatives not qualifying for hedge accounting (24) (88) (46) Finance income 8 89 52 64 Finance costs 8 (1,111) (750) (649) Amortisation of discount (338) (378) (382) (773) (4,702) (3,008) Profit/(loss) before taxation 6,343 (726) 9,552 Taxation 9 (1,567) (993) (3,053) Profit/(loss) after tax for the year 4,776 (1,719) 6,499 – attributable to owners of Rio Tinto (net earnings/(loss)) 4,617 (866) 6,527 – attributable to non-controlling interests (net earnings/(loss)) 159 (853) (28) Basic earnings/(loss) per share 10 256.9c (47.5)c 353.1c Diluted earnings/(loss) per share 10 255.3c (47.5)c 351.2c The notes on pages 116 to 194 are an integral part of these consolidated financial statements. 110 riotinto.com 2016 Annual report Group statement of comprehensive income STRATEGIC REPORT DIRECTORS’ REPORT Years ended 31 December 2016 2015 2014 Note US$m US$m US$m Profit/(loss) after tax for the year 4,776 (1,719) 6,499 Other comprehensive (loss)/income: Items that will not be reclassified to profit or loss: Actuarial (losses)/gains on post retirement benefit plans 45 (90) 619 (735) Tax relating to these components of other comprehensive (loss)/income 9 29 (175) 215 (61) 444 (520) Items that have been/may be subsequently reclassified to profit or loss: Currency translation adjustment (a) (157) (2,395) (2,004) Currency translation on companies disposed of, transferred to the income statement 99 (2) 53 Fair value movements: –Cashflowhedgelosses (88) (41) (48) – Cash flow hedge losses transferred to the income statement 116 32 55 – Gains/(losses) on revaluation of available for sale securities 13 (19) (36) – Losses on revaluation of available for sale securities transferred to the income statement – 11 6 Tax relating to these components of other comprehensive (loss)/income 9 4 (3) (9) Share of other comprehensive income/(loss) of equity accounted units, net of tax 11 (57) (44) Other comprehensive loss for the year, net of tax (63) (2,030) (2,547) Total comprehensive income/(loss) for the year 4,713 (3,749) 3,952 FINANCIAL STATEMENTS – attributable to owners of Rio Tinto 4,504 (2,443) 4,322 – attributable to non-controlling interests 209 (1,306) (370) (a) Excludes a currency translation charge of US$35 million (2015: US$503 million; 2014: US$376 million) arising on Rio Tinto Limited’s share capital for the year ended 31 December 2016, which is recognised in the Group statement of changes in equity. Refer to Group statement of changes in equity on page 114. The notes on pages 116 to 194 are an integral part of these consolidated financial statements. PRODUCTION METALS AND MINERALS ADDITIONAL INFORMATION 2016 Annual report riotinto.com 111 Group cash flow statement Years ended 31 December 2016 2015 2014 Note US$m US$m US$m Cash flows from consolidated operations (a) 11,368 12,102 18,896 Dividends from equity accounted units 253 210 298 Cash flows from operations 11,621 12,312 19,194 Net interest paid (1,294) (827) (981) Dividends paid to holders of non-controlling interests in subsidiaries (341) (310) (309) Tax paid (1,521) (1,792) (3,618) Net cash generated from operating activities 8,465 9,383 14,286 Cash flows from investing activities Purchases of property, plant and equipment and intangible assets 2 (3,012) (4,685) (8,162) Disposals of subsidiaries, joint ventures and associates 37 761 (38) 887 Purchases of financial assets (789) (49) (24) Sales of financial assets 582 65 172 Sales of property, plant and equipment and intangible assets 354 97 744 Net funding of equity accounted units (12) 11 (117) Acquisitions of subsidiaries, joint ventures and associates 37 – (3) – Other investing cash flows 12 2(3) Net cash used in investing activities (2,104) (4,600) (6,503) Cash flows before financing activities 6,361 4,783 7,783 Cash flows from financing activities Equity dividends paid to owners of Rio Tinto 11 (2,725) (4,076) (3,710) Proceeds from additional borrowings 4,413 1,837 442 Repayment of borrowings (9,361) (3,518) (3,476) Proceeds from issue of equity to non-controlling interests 101 103 1,291 Own shares purchased from owners of Rio Tinto – (2,028) – Purchase of non-controlling interests 37 (23) –– Other financing cash flows 104 12 17 Net cash flows used in financing activities (7,491) (7,670) (5,436) Effects of exchange rates on cash and cash equivalents (35) (159) (156) Net (decrease)/increase in cash and cash equivalents (1,165) (3,046) 2,191 Opening cash and cash equivalents less overdrafts 9,354 12,400 10,209 Closing cash and cash equivalents less overdrafts 21 8,189 9,354 12,400 (a) Cash flows from consolidated operations Profit/(loss) after tax for the year 4,776 (1,719) 6,499 Adjustments for: – Taxation 1,567 993 3,053 – Finance items 773 4,702 3,008 – Share of profit after tax of equity accounted units (321) (361) (625) – Impairment charges net of reversals of investments in equity accounted units after tax 6 – – (589) – Net (gains)/losses on disposal of interests in businesses 37 (515) (64) 563 – Impairment charges net of reversals 6 249 2,791 1,062 – Depreciation and amortisation 4,794 4,645 4,860 – Provisions (including exchange differences on provisions) 26 1,417 726 712 Utilisation of provisions 26 (627) (585) (973) Utilisation of provision for post-retirement benefits 26 (370) (230) (296) Change in inventories 292 526 937 Change in trade and other receivables (794) 1,404 962 Change in trade and other payables 229 (431) (380) Other items (b) (102) (295) 103 11,368 12,102 18,896 (b) Includes a cash outflow of US$29 million (2015: outflow of US$227 million; 2014: inflow of US$66 million) mainly relating to derivative contracts transacted for operational purposes and not designated in a hedge relationship.