| Mon 12 Feb 2001, 0:00 | | Billiton Plc - Interim Results For Six Months To 3 |
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INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2000
Highlights
* Major projects on stream: Mozal aluminium smelter, Worsley alumina expansion,
Cerro Matoso nickel expansion
* Substantial base in copper established with the US$1.75 billion acquisition
of Rio Algom
* Significant expansion of Coal operations in South America
* Successful secondary offer raised US$850 million
* Management structure enhanced to deliver superior returns for shareholders
* Major feasibility studies underway in aluminium, copper, coal and nickel
* Operating profit US$488 million (1999: US$378 million)
* Attributable profit US$338 million (1999: US$241 million)
* Earnings per share of 15.4 US cents (1999: 11.6 US cents)
* Interim dividend increased to 4.0 US cents (1999: 3.75 US cents)
Brian Gilbertson, Chairman and Chief Executive, commented:
"The last six months have been a period of considerable activity for the Group
and I am very pleased to report that all the important transactions we had
embarked upon at the time of my last review have been successfully concluded.
The acquisition of Rio Algom, the completion our large aluminium projects - the
Mozal smelter and the Worsley refinery expansion - the second line at Cerro
Matoso and the reorganisation of our internal management structure will help
form the basis for continued growth and profitability in the future. In
addition, they will position the Company well to benefit from the on-going
process of consolidation in our industry."
Enquiries:
Marc Gonsalves, Senior Manager Corporate Affairs, Billiton Plc
Tel: +44 20 7747-3956 Mobile: +44 7768 264 950
Fax: +44 20 7747-3903 email: mgonsalves@billiton.com
Michael Campbell, Manager Public Affairs, Billiton SA Limited
Tel: +27 11 376 3360 Mobile: +27 82 458 2587
Fax: +27 11 376 3362 email: mcampbell@billiton.com
Michael Oke/Rupert Trefgarne, Smithfield Financial:
Tel: +44 20 7360-4900
Billiton Plc
Interim Results for the six months to 31 December 2000
Chairman's Review
A half year of strong progress
At the time of my last review nearly six months ago, we were in the midst of a
number of important transactions designed to continue the progress of the
Group. I am very pleased to report that these have all been brought to a
successful conclusion, and will provide us with a major broadening of our
strategic base. Our two large aluminium projects - the Mozal smelter and the
Worsley refinery expansion - and the second line at Cerro Matoso have come
onstream, and these will make a material contribution to earnings in the
future. Against the background of continued uncertainty in the commodity
markets, we achieved further satisfactory improvement in our results.
Acquisition of Rio Algom
We completed our acquisition of Rio Algom Limited in October, for a cash
consideration of US$1,187 million plus the assumption of US$563 million of net
debt. We thus attained our objective of establishing a substantial production
base in the copper industry, with a portfolio of assets which offers much
potential for future growth. Progress since then has reinforced our confidence
in the underlying value of the Rio Algom assets.
For the year to 31 December 2000, the wholly-owned Cerro Colorado copper mine
in Chile achieved record production levels, 19% above the previous year and 13%
above plan. Its cash costs also fell to a record low of US$0.43/lb, and its
de-bottlenecking project is on track to stretch annual production to 125,000t .
Calendar 2000 production from the 33.6% owned Highland Valley copper mine in
Canada was also at a record level, and its cash cost of US$0.55/lb was the
lowest since 1987, confirming its strong recovery after the previous year's
restructuring. Total attributable copper production from all the Rio Algom
operations reached a record 216,000t, 17% higher than 1999 and 8% above plan.
The value of the assets not yet in production has also been enhanced. The
Antamina copper-zinc project in Peru, in which Billiton has a 33.75% interest,
remains on budget and ahead of schedule, while a re-evaluation in November has
resulted in a 13% increase in the reserves. The mine is expected to be one of
the largest and lowest cash-cost base metals operations in the world when it
comes onstream in the second half of calendar 2001.
Integration of Rio Algom into Billiton is well advanced, and should be
completed by the end of the current financial year. Rio Algom's exploration
programme is being absorbed into that of Billiton's. Given efficiency gains
and cost savings, this will be accomplished without any increase in the Group's
exploration budget. Together with cost cutting at the centre, this will enable
us to reduce the annual corporate costs of Rio Algom by an estimated 38% going
forward. The new management team is reviewing strategic alternatives in
respect of a number of the former Rio Algom assets, including the metals
distribution business, the Alumbrera operation and a number of non-core
projects, with a view to adding value.
Other significant acquisitions
We also finalised a number of other important acquisitions. Our US$1.49 billion
purchase of Alcoa's 56% stake in the Worsley alumina refinery was completed
this January. Our Japanese partners in Worsley decided not to increase their
existing 14% interest, and we are well satisfied to be left holding 86% of this
strategically important and valuable business.
In coal, we established a substantial production base in Colombia, thus
providing the desired 'third leg' for our global multi-sourcing strategy. In
September we finalised our agreement to acquire one-third of Carbones del
Cerrejon, leaving its ownership equally shared between ourselves, Anglo
American and Glencore. In November, the same consortium acquired the Colombian
government's 50% share of the adjoining Cerrejon Norte operation. Together
these provide the platform for a major coal business, with low-cost expansion
potential, to supply the European and American markets.
We further expanded our base metals interests with the acquisition of the La
Granja copper resource in Northern Peru. Testwork is now being undertaken to
evaluate the potential for heap and dump leaching, and for the application of
BioCOP, Billiton's proprietary biotechnology, on high grade areas within the
deposit.
Of all the potential transactions to which I referred in my last report, the
only one which failed to materialise was our offer for 30% of the Gove
bauxite/alumina business, as the existing majority shareholder exercised its
pre-emption rights. Our disappointment was assuaged by our receipt of a US$14
million break fee (net of costs) and, of course, by the successful conclusion
of the Worsley acquisition, which leaves us well positioned in alumina for the
foreseeable future.
Projects about to bear fruit
In September we held the official opening ceremony for the Mozal aluminum
smelter, marking the conclusion of an outstanding achievement by the project
team. The smelter was completed in 25 months, a full six months ahead of
schedule, which is thought to be a world record for a greenfield smelter of
this size. In addition, the total cost of US$1.2billion was more than US$100
million below budget. Production is now building up steadily and should reach
full capacity by the end of the current quarter. Everybody involved with this
project deserves the highest praise.
Our other aluminium project, the 80% expansion of the Worsley alumina refinery,
was also completed during the first half. Production will reach its target
3.1 mt annual rate very shortly, with the full benefit of our increased
shareholding flowing through to Billiton.
The second line at Cerro Matoso made excellent progress. The first ferronickel
was produced at the beginning of January, three months ahead of target and also
under budget. Production is forecast to rise steadily, with full plant
capacity of 55,000tpa being reached in about 18 months time.
Potential projects
Feasibility studies into the low-cost expansions at Mozal (an additional
250,000tpa) and Hillside (an additional 100,000-150,000tpa) are scheduled to be
concluded towards the end of the first quarter of calendar 2001, with the
consequent decisions likely to be made by the end of this financial year.
Work is underway to assess the various processing options available at the
Spence copper project in Chile. This will be followed by a full feasibility
study, likely to commence in the second quarter of calendar 2001. All initial
work has affirmed the potential world class nature of the deposit.
The Mount Arthur North coal project remains on track, and - subject to
development consent and the other necessary approvals - could commence during
the next financial year.
Elsewhere in Australia, detailed feasibility studies are now under way for the
Ravensthorpe nickel project and the associated Yabulu extension project. These
studies should be completed around the end of our current financial year,
following which we will be in a position to decide whether to commence
construction.
Results for first half of financial year 2001
As the first half progressed, growing evidence of a slow-down in global
economic growth, led by the weakening of the US economy, put pressure on the
prices of some of the commodities relevant to us. Average aluminium and nickel
prices during the period slipped back from the levels reached in the second
half of last year, although remaining above the levels of the first half. The
potential adverse impact of weaker consumption on the aluminium market is being
substantially offset by the idling of significant smelting capacity in North
America, estimated to be in excess of one million tonnes per annum.
After achieving record levels of output, the global carbon and stainless steel
industries are undergoing a stiff correction to reduce inventory build-up in
the face of slowing economic growth. The consequent impact on ferroalloys
markets is now being felt, particularly in ferrochrome. In contrast, export
steam coal markets have enjoyed a strong recovery from the exceptionally severe
slump in prices seen in the previous year, and the outlook remains sound.
Jul-Dec Jan-Jun Jul-Dec
1999 2000 2000
(average) (average) (average) 31.1.01
LME Aluminium (cash, US$/t) 1,472 1,560 1,539 1,710
LME Copper (cash, USc/lb) 78 80 84 81
LME Nickel (cash, US$/lb) 3.21 4.27 3.57 3.12
Ferrochrome (benchmark, USc/lb)
Source: CRU (50-55%) - Delivered 37.17 41.15 41.63 40.00
High Carbon Ferromanganese (US$/t)
Source: Metals Week - Delivered 431.2 471.3 489.1 460.0
SA Export Steamcoal (spot, 6000NAR, US$/t)
Source: SA Coal Report Spot Coal Index 21.65 24.09 28.40 32.50
Group turnover for the six months to 31 December 2000 rose to US$3,306 million,
23% above the corresponding period of the previous year. Operating profit
(including our share of joint ventures and associates) increased by 29% to
US$488 million, of which acquisitions (primarily Rio Algom) contributed US$17
million. Attributable profit was 40% higher at US$338 million.
Net cash flow from operating activities (including dividends from joint
ventures) increased by 33% to US$494 million.
Earnings per share increased by 33% to 15.4 US cents. The Directors have
declared an interim dividend of 4.0 US cents per ordinary share, compared with
3.75 US cents for the previous year.
The operations
Operating margins have once again been aided by the fact that almost all our
sales are denominated in US dollars, while a large portion of our production is
located in countries with weaker currencies. This structural benefit continues
to be reinforced by ongoing efficiency improvements, which equated to just over
1% of operating costs.
A striking feature of our operations in the first half was the strong recovery
in profits from our coal interests, where the benefit from higher prices was
reinforced by a significant reduction in costs in US dollar terms. Aluminium
profits were a little higher, and should begin to receive a significant
contribution from Mozal and the Worsley expansion during the second half. Steel
and ferroalloys profits improved on the back of higher average prices for the
period, but will be adversely affected by lower prices in the second half.
Nickel profits were held back by the timing of shipments and were virtually
unchanged, while titanium minerals continued to benefit from the protection
provided by its long-term contracts.
Financing in place
I am pleased to report that the equity fundraising, which we announced in
August, was well received by the financial markets, with a total demand for
more than double the shares placed. The placing raised US$850 million towards
the cost of the Worsley and other acquisitions, and has left our balance sheet
soundly structured. At the end of the half year, net debt amounted to US$2,748
million, equivalent to 45% of shareholders funds. The cash balance totaled
US$597 million. Since the end of the half year, completion of the purchase of
the additional 56% of Worsley has raised proforma gearing to 70%, in line with
our forecasts at the time of my last report.
Evolution of management structure
We reviewed our management structure in the wake of the important corporate
developments of the past two years, including the minority buy-outs and the
major expansion of our asset base, seeking the organisational structure that
would best allow Billiton to deliver superior returns, whilst retaining the
strengths of the existing corporate structure. Our conclusion has been to
retain the commodity-based reporting lines, but complemented by two new
initiatives.
The first, Billiton Metals and Mining (BMM), is a drive to improve further our
operational efficiency. It will build on the base of our existing commodity
businesses by driving best practice across our operations, with particular
focus on cost reduction and the pursuit of attractive growth opportunities.
The second, Billiton Capital (BCAP), is a corresponding effort to increase our
financial efficiency, and to seek new high-return opportunities in areas
related to our existing activities. Particular emphasis will be placed on
reducing the amount of equity capital needed to support our businesses,
reducing the volatility of revenue streams, and enhancing our return on equity.
Mr Mike Salamon has assumed responsibility for promoting BMM initiatives across
the Group, whilst retaining his existing executive responsibility for Nickel,
Steel & Ferroalloys and Titanium Minerals.
Mr Mick Davis has taken central responsibility for BCAP initiatives in addition
to his existing responsibility for Finance. He has also assumed responsibility
for Group Marketing, e-Business, Exploration and Development, Biotechnology and
New Business.
Dr Marius Kloppers, formerly Chief Executive of Samancor Manganese, has joined
the Billiton Executive Committee with responsibility for Coal and Manganese.
e-Business initiative
Billiton, in partnership with Accel-KKR, Anglo American, Glencore and Rio
Tinto, has launched a new initiative in internet-based marketing of
commodities, aimed at establishing e-marketplaces for individual commodities.
These will be open to all, transparent, favouring neither buyers nor sellers,
and will have the benefit of the liquidity provided by the major industry
participants. The first of these, in coal, is well advanced under the name
Global Coal. Trading is expected to commence during the first quarter of
calendar 2001. We expect these marketplaces to improve the commercial
efficiency and transparency of the markets. They will also benefit Billiton by
releasing some of the latent value locked up in the liquidity of our range of
commodities, and provide us with a valuable platform in the 'new economy'.
The share register
As part of the equity fundraising, the whole of the 53.9 million shares (2.3%
of the issued ordinary capital) held under the share repurchase scheme was
placed with institutional investors.
On 6 December 2000, Anglo American Plc and De Beers announced that they would
acquire Rembrandt Group's holding of 190 million Billiton shares (8.2% of the
issued ordinary capital). Subsequently, Mr Matthys Visser resigned from his
position as non-Executive Director of Billiton.
The proportion of shareholders on the London register rose from 59% at 30 June
2000 to 64% at 31 December 2000.
Conclusion
The six months to 31 December 2000 were a period of remarkable corporate
activity, during which important changes occurred in Billiton's asset portfolio
and its internal management structure. These will form the basis for continued
growth and profitability in the future. In addition, they have positioned the
Company well to benefit from the on-going process of consolidation in our
industry.
Financial Review
Basis of presentation of financial statements
Billiton's financial statements are presented in accordance with UK generally
accepted accounting principles. The reporting currency is US dollars, the
dominant currency in which Billiton and the companies in which it has holdings
operate.
The only new accounting standard applicable to the current financial year is
FRS 18 'Accounting Policies', and this has been adopted during the period with
no effect on the Group's accounting policies or results.
6 months to 31.12.00
Group Acquired Group excl. 6 months 12 months
total activities acquisitions to 31.12.99 to 30.6.00
(including joint
ventures and
associates) US$m US$m US$m US$m US$m
Group:
Turnover 3,306 364 2,942 2,698 5,550
Operating costs (2,818) (347) (2,471) (2,320) (4,700)
Operating profit 488 17 471 378 850
Production:
Turnover 2,548 100 2,448 2,279 4,766
Related operating
costs (2,073) (90) (1,983) (1,906) (3,934)
Operating profit 475 10 465 373 832
Margin 18.6% 9.0% 19.0% 16.4% 17.5%
Trading and metals
distribution:
Turnover 758 264 494 419 784
Related operating
costs (745) (257) (488) (414) (766)
Operating profit 13 7 6 5 18
Margin 1.7% 2.7% 1.2% 1.2% 2.3%
Results for the six months to 31 December 2000
The results for the six months to 31 December 2000 contain a contribution from
acquisitions during the period, almost entirely from Rio Algom Limited. Rio
Algom's activities were consolidated from the date of its acquisition in
October 2000.
Turnover, including share of joint ventures and associates, was US$3,306
million, 23% above the comparable period of the previous year. Excluding the
US$364 million contribution from acquisitions, the rise in turnover was 9%.
Turnover from production rose from US$2,279 million to US$2,548 million,
including US$100 million from acquisitions (7% up excluding acquisitions).
Turnover from trading (the marketing and trading of third party products) and
metals distribution increased from US$419 million to US$758 million, including
US$264 million from acquisitions (18% up excluding acquisitions).
The rise in turnover (excluding acquisitions) predominantly reflects higher
average selling prices during the period. The average LME cash prices for
aluminium and nickel were respectively 5% and 11% higher than for the
corresponding period of the previous year. Average realised ferromanganese and
ferrochrome prices rose by 11%, while average export steamcoal prices increased
by about 30%.
Operating profit, including share of joint ventures and associates, was US$488
million, 29% above the comparable period of the previous year. Excluding the
US$17 million contribution from acquisitions (after the amortisation of fair
value adjustments of US$7 million), operating profit rose by 25%. Operating
profit from production rose from US$373 million to US$475 million, including
US$10 million from acquisitions (25% up excluding acquisitions). Operating
profit from trading and metals distribution increased from US$5 million to
US$13 million, including US$7 million from acquisitions.
The approximate impact of the factors underlying this improvement in operating
profit are analysed in the following table:
US$m
Operating profit (including joint ventures and associates)
for 6 months to 31.12.99 378
Change in sales prices (net of hedging) 136
Increased sales volumes 6
Increase in costs linked to commodity sales prices (net of hedging) (44)
Efficiency gains at production units 23
Weakening of currencies of key operating territories relative to the US dollar
78
Inflation impact on costs (107)
Acquisitions and disposals 16
Reorganisation costs (6)
Other items (including trading and central items) 8
Operating profit (including joint ventures and associates) for 6 months to
31.12.00 488
Operating costs of production activities, including the Group's share of joint
ventures and associates, increased by 4% before the contribution from
acquisitions. Efficiency gains achieved at operating units were equivalent to
1% of unit operating costs.
Higher sales prices, currency weakness of the key operating territories, and
efficiency gains contributed to an increase in operating margins of the
production activities, including joint ventures and associates, from 16.4% to
18.6% (19.0% excluding acquisitions). Margins from trading operations and
metals distribution increased from 1.2% to 1.7%, reflecting the higher margins
of the acquired metals distribution business: excluding the latter, trading
margins were maintained at 1.2%.
The breakdown of total operating profit by business segment, including joint
ventures and associates, is as follows:
6 months to 6 months to 12 months to
31.12.00 31.12.99 30.6.00
US$m US$m US$m
Operating profit (including share
of joint ventures and associates):
Aluminium 212 206 431
Base metals 19 15 27
Coal 103 29 59
Nickel 41 40 140
Steel and ferroalloys 63 53 148
Ferroalloys 65 57 149
Stainless steel (2) (4) (1)
Titanium minerals 93 98 155
Metals distribution 7 - -
New business and technology (12) (22) (52)
Central items (38) (41) (58)
Group 488 378 850
The metals distribution business acquired with Rio Algom is operationally
managed as a separate segment, and the remainder of the Rio Algom activities
are included in base metals. The aluminium profit includes US$14 million (after
costs) arising from the break fee payable because the Group's offer for 30% of
the Gove alumina refinery was pre-empted.
New business and technology expenditure fell from US$22 million to US$12
million, reflecting the strategic shift away from direct exploration towards
investments in junior partners. The net cost of central items reduced
marginally from US$41 million to US$38 million.
The depreciation charge increased from US$194 million to US$219 million, due to
the inclusion of depreciation on Rio Algom activities and initial depreciation
on the recently completed Mozal project. The breakdown by business segment
(excluding joint ventures and associates) is as follows:
6 months to 6 months to 12 months to
31.12.00 31.12.99 30.6.00
US$m US$m US$m
Aluminium 86 76 148
Base metals 19 5 9
Coal 56 60 113
Nickel 21 21 37
Steel and ferroalloys 32 30 67
Metals distribution 2 - -
Central 3 2 8
Depreciation 219 194 382
Income from other fixed asset investments rose from US$6 million to US$11
million, including US$5 million from Sweet River Investments (the holding
company for the indirect stake in CVRD, acquired in July 2000).
Net interest and similar items payable reduced from US$52 million to US$1
million, as shown below:
6 months to 6 months to 12 months to
31.12.00 31.12.99 30.6.00
US$m US$m US$m
Total interest and preference
dividends payable* (155) (115) (238)
Interest receivable 48 22 68
Net interest payable before capitalised
interest (107) (93) (170)
Capitalised interest 15 27 55
Net interest payable (92) (66) (115)
Exchange differences on net debt 91 14 94
(1) (52) (21)
* Including share of net interest charge of joint ventures and associates
Net interest payable, before capitalised interest and exchange gains, rose from
US$93 million to US$107 million, reflecting the increase in average Group net
debt relative to the previous year. Completion of the Mozal and Worsley
expansion projects resulted in a decrease in capitalised interest from US$27
million to US$15 million. Interest cover (the ratio of operating profit plus
income from fixed asset investments to net interest payable) was 5.4 times,
compared with 5.8 times for the first half of 1999 and 7.5 times for the full
year.
Exchange differences primarily reflect the gain or loss from the period-end
translation of the net rand-denominated debt of companies which account in US
dollars as their functional currency. The exchange gain of US$91 million for
the first half of the current year arises from the 10% depreciation of the rand
against the US dollar over the period. For the corresponding period of the
previous year, there was an exchange gain of US$14 million, and a 2%
depreciation in the rand against the US dollar.
The effective average annualised interest rate on Group debt, including
exchange differences, reduced from 7.8% to 6.1%.
The tax charge for the half year was US$147 million. As a percentage of profit
before tax and exchange differences on net debt, this represents an effective
tax rate of 36.1% compared to 29.2% for the year ended 30 June 2000. The
effective tax rate for the period was increased as a result of larger dividends
than hitherto being paid by South African subsidiaries, which were subje
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