| Mon 24 Feb 2003, 10:09 | | Bhp Billiton Limited Interim Report - For The Half |
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Bhp Billiton Limited Interim Report - For The Half Year Ended 31 December 2002
Release Date: 24/02/2003 08:45:51 Code(s): BIL
BHP Billiton Limited Interim Report - For The Half Year Ended 31 December 2002
Bhp Billiton Plc
ISIN: GB0000566504
Share code: BIL
Prepared in Accordance with Australian Generally Accepted Accounting Principles
(GAAP)
BHP Billiton Limited
Australian Business Number 49 004 028 077
Registered Office:
45th Floor BHP Billiton Tower - Bourke Place
600 Bourke Street Melbourne 3000 Australia
CONTENTS
Page
DIRECTORS` REPORT
Review of operations 1
Board of Directors 7
INTERIM CONDENSED FINANCIAL STATEMENTS
Statement of Financial Performance 9
Statement of Financial Position 10
Statement of Cash Flows 11
Notes to Financial Statements 12
DIRECTORS` DECLARATION 27
INDEPENDENT REVIEW REPORT 28
Notes to financial statements
1. Basis of preparation of interim condensed financial 12
statements
2. Significant items 13
3. Discontinued operations 14
4. Revenue from ordinary activities 16
5. Expenses from ordinary activities, excluding depreciation, 16
amortisation and borrowing costs
6. Depreciation and amortisation 17
7. Borrowing costs 17
8. Segment results 18
9. Dividends 19
10. Investments accounted for using the equity method 19
11. Exploration, evaluation and development expenditure 20
capitalised
12. Contributed equity and called up share capital 21
13. Share options 22
14. Retained profits 24
15. Total equity 24
16. Notes to the statement of cash flows 25
17. Contingent liabilities and contingent assets 25
18. Significant events after end of half year 25
19. Statement of Financial Position - Australian Dollars 26
All amounts are expressed in US dollars unless otherwise
stated.
DIRECTORS` REPORT
The Directors present their report together with the interim condensed financial
statements for the half-year ended 31 December 2002 and the auditors` review
report thereon.
REVIEW OF OPERATIONS
Stability and Growth
These results build on the progress made since the merger and illustrate the
continued success of the Customer Sector Group business model and the Company`s
strategy. In a period of global economic weakness and despite self imposed cut-
backs at some of our operations, financial results have remained solid and cash
flow generation from our portfolio of high quality assets is strong. We have
exceeded our merger benefits target six months ahead of schedule and have
delivered further cost savings against our additional target of US$500 million.
Strong operational cash flow (after interest and tax) of US$1,189 million has
enabled us to proceed with sanctioned growth projects. Progress on all projects
continues to be on or ahead of schedule and budget. Notable milestones were
reached during the half-year with the mechanical completion and commissioning of
Escondida Phase IV (Chile), the commencement of operations at the San Juan
underground project (US) and the commencement of natural gas flow through the
Bream gas pipeline in Bass Strait (Australia). Currently 13 major capital
projects are under development, including the recently approved Atlantis full
field development in the Gulf of Mexico.
Strong cash flows enabled the Board to increase dividends paid to shareholders
by 7.7% compared with the half year ended 31 December 2001 (the "corresponding
period"). A dividend of 7.0 US cents per share was paid on 4 December 2002.
Financial Results
Group Result
The profit after tax attributable to BHP Billiton shareholders for the half-year
ended 31 December 2002 was US$891 million (31 December 2001 US$1,177 million).
Basic earnings per share were 14.4 US cents (31 December 2001 19.5 US cents).
This included the loss on sale of the remaining 6% interest in the Group`s Steel
business following demerger of that business in July 2002, which has been
disclosed as a significant item in the half-year ended 31 December 2002. The
contribution of the Group`s Steel business in the corresponding period has been
disclosed as discontinued operations (Refer note 3 to the financial statements).
There were no significant items reported in the half year ended 31 December
2001.
Revenue was US$7,277 million, compared with US$8,825 million for the
corresponding period, mainly due to the demerger of the Group`s Steel business
in July 2002. For other information relating to revenue, refer below under
Petroleum, Aluminium, Base Metals, Carbon Steel Materials, Stainless Steel
Materials, Energy Coal, Diamonds and Specialty Products and Group and
Unallocated Items.
Profit from ordinary activities before taxation was US$1,275 million compared
with a profit of US$1,696 million for the corresponding period. There were a
number of factors which affected the results for current half year including:
Foreign currency fluctuations had an unfavourable effect of approximately US$450
million compared with the corresponding period. This was principally due to
foreign exchange losses on conversion of Rand denominated monetary assets and
liabilities at balance date, with the Rand appreciating by 16% during the
current period compared with a depreciation of 47% in the corresponding period.
The conversion of A$ denominated monetary assets and liabilities and the impact
of the stronger A$/US$ exchange rates on operating costs also had an
unfavourable impact on profit. This was partly offset by reduced losses on
legacy A$/US$ currency hedging compared with the corresponding period and lower
average Rand/$US and Colombian peso/US$ exchange rate impacts on operating
costs.
Inflationary pressures, principally in South Africa, increased costs by
approximately US$140 million.
Ceased, sold and discontinuing businesses had an unfavourable effect on profit
before taxation of approximately US$135 million, mainly due to the demerger of
the Group`s Steel business, and the inclusion in the corresponding period of
profits from PT Arutmin which was divested in November 2001 and the Rietspruit
energy coal mine which was closed in May 2002.
Increases in price linked costs depressed profits by approximately US$50
million, mainly due to higher royalties and taxes for petroleum products.
The impact of asset sales is a reduction in profits of approximately US$60
million mainly from the divestment of PT Arutmin in the corresponding period and
the loss on sale of 6% of the Group`s Steel business in the current period.
These factors were partly offset by:
Higher sales volumes of iron ore, energy coal, diamonds and aluminium partly
offset by lower sales volumes of petroleum products, resulting in a positive net
volume impact on profits of approximately US$130 million.
Higher prices for petroleum products, nickel, copper, manganese, metallurgical
coal and chrome increased turnover by approximately US$290 million. This
increase was partly offset by lower prices for export energy coal, diamonds,
iron ore and aluminium that decreased turnover by approximately US$230 million.
Exploration expense was down by approximately US$90 million. The prior period
included the write off of exploration expenditure at La Granja (Peru) and higher
exploration expense in Petroleum.
Favourable operating cost performance increased profits by approximately US$80
million compared with the corresponding period. The Group`s cost reduction
initiatives and reduced maintenance costs at Hillside (South Africa) lowered
costs by approximately US$190 million. These factors were partially offset by
higher costs at Escondida, due to voluntary restraints on production,
maintenance outages and higher depreciation from the start-up of Phase IV.
Higher operating costs at Bass Strait, increased depreciation charges in Energy
Coal (as a result of a review of asset lives) and in Petroleum also had an
unfavourable impact on operating costs.
Refer below to the discussions relating to the relevant Customer Sector Groups
for other factors affecting the December 2002 results.
Depreciation and amortisation expense decreased US$77 million to US$807 million
in the current half year. This was mainly due to the lower depreciation expense
as a direct result of the demerger of the Group`s Steel business in July 2002.
Borrowing costs decreased US$115 million to US$144 million in the current half
year. Including capitalised interest, total borrowing costs decreased US$79
million to US$195 million, principally driven by lower market interest rates and
lower average debt levels.
The tax expense for the period ended 31 December 2002 was US$367 million,
compared with US$497 million for the period ended 31 December 2001. The
effective taxation rate for the current half year was 28.8% compared with 29.3%
in the corresponding period, while the nominal taxation rate was 30% for the
current half year.
Segment Results
Petroleum
Petroleum contributed US$650 million to profit before tax, up from US$568
million, an increase of 14.4% compared with the corresponding period.
The increase in profit before tax was due mainly to a higher average realised
oil price of US$27.19 per barrel compared to US$22.54 per barrel in the
corresponding period, together with lower exploration costs in the current
period and higher volumes at North West Shelf (Australia) due to timing of
shipments and strong production.
These factors were partly offset by lower overall sales and production volumes
at Liverpool Bay (UK) due to scheduled maintenance, and lower production at Bass
Strait and Laminaria (Australia), due to natural field decline. An increase in
price-linked costs (royalties and taxes), higher depreciation and an increase in
costs at Bass Strait also had an unfavourable impact on profit before tax.
Aluminium
Aluminium contributed US$242 million to profit before tax, up from US$233
million, an increase of 3.9% compared with the corresponding period.
The increase in profit before tax was mainly attributable to improved
operational cost performance at Hillside, Worsley and Alumar, resulting from
increased production and reduced maintenance costs. Increased production at
Hillside and Worsley was mainly attributable to the continued success of
Operating Excellence projects and increased production at Alumar was due to the
end of power restrictions in Brazil. Lower maintenance costs at Hillside were
mainly a result of a lower number of pots being relined in the current period,
combined with the absence of the net costs associated with the September 2001
power outage. The weakening of the Rand/US$ and Brazilian Real/US$ average
exchange rates also had a favourable impact on operating costs.
These factors were partially offset by foreign exchange losses arising on
conversion of Rand denominated tax provisions at balance date, compared with
foreign exchange gains in the corresponding period. The lower average LME price
for aluminium, down US$17 per tonne or 1.3% to US$1,332 per tonne and the
strengthening of the A$/US$ exchange rate also had an unfavourable impact on
profits.
Base Metals
Base Metals contributed US$53 million to profit before tax, up from US$51
million, an increase of 3.9% compared with the corresponding period.
The increase in profits was mainly attributable to lower exploration expense
with US$38 million relating to the write off of La Granja included in the
corresponding period. Also contributing to the increase in profits was the
higher average realised copper price at US$0.68 per lb, for the half year ended
31 December 2002, compared to US$0.65 per lb in the corresponding period.
Profits also benefited from a full six months of operations from Antamina.
Commercial production at Antamina commenced in October 2001.
These factors were partially offset by increased unit costs at Escondida due to
the ramp-up of Phase IV production and lower existing plant throughput resulting
from maintenance outages. Production cutbacks at Escondida and Tintaya (Peru)
were partially offset by the completion of the Phase IV expansion in October
2002.
Carbon Steel Materials
Carbon Steel Materials contributed US$490 million to profit before tax, down
from US$550 million, a decrease of 10.9% compared with the corresponding period.
The decrease in profits was mainly attributable to the unfavourable impact of
stronger A$/US$ exchange rates on operating costs compared to the corresponding
period. Lower iron ore prices, following the contract settlements announced in
May 2002, also unfavourably impacted profits.
These factors were partially offset by continued strong demand for Western
Australian iron ore from Asian markets, which resulted in record production and
shipping during the December 2002 half year. Increased demand during the current
half year for Samarco (Brazil) pellets also had a favourable impact on profits.
Diamonds and Specialty Products
Diamonds and Specialty Products contributed US$84 million to profit before tax,
down from US$144 million, a decrease of 41.7% compared with the corresponding
period.
The decrease in profit before tax was mainly attributable to foreign exchange
losses arising from conversion of Rand denominated tax provisions and debt at
balance date, compared with foreign exchange gains in the corresponding period.
Profits were also unfavourably impacted by lower average realised diamond prices
(down 28%) as a result of a change in product mix compared with the
corresponding period and during the current period Integris` volumes have been
adversely affected by market conditions in North America.
These factors were partially offset by increased diamond production, mainly due
to increased plant throughput and processing efficiencies. Cost efficiencies
were achieved by Integris Metals (US) subsequent to the merger of BHP Billiton`s
and Alcoa Metals` metals distribution businesses on 1 November 2001.
Energy Coal
Energy Coal contributed US$94 million to profit before tax, down from US$391
million, a decrease of 76.0% compared with the corresponding period.
The decrease in profits was primarily due to the foreign exchange losses arising
from conversion of Rand denominated monetary liabilities at balance date,
compared with foreign exchange gains in the corresponding period, and a
significant decline in export market prices. The divestment of PT Arutmin in
November 2001 and the closure of the Rietspruit mine in May 2002 had an
unfavourable impact on profits with both the exclusion of the results of these
operations in the current period and the profit on sale of PT Arutmin recorded
in the corresponding period. The unit cost impact from lower Colombian
production volumes in response to depressed European market conditions, higher
depreciation charges as a result of a review of asset lives and inflationary
pressure on costs in South Africa and Colombia also had an unfavourable impact
on profits.
These factors were partially offset by higher sales volumes at Ingwe (South
Africa) and Hunter Valley (Australia), the inclusion of profits from the
additional share of the Cerrejon Zona Norte operation and cost improvement
initiatives across all Energy Coal operations.
Stainless Steel Materials
Stainless Steel Materials contributed US$58 million to profit before tax,
compared with a loss of US$25 million in the corresponding period.
The increase in profits was driven by higher realised prices for nickel, up by
29%. In addition, a 12% increase in ferrochrome production, associated with the
restart of idle furnaces in the period in response to increasing market demand,
and a 15% increase in nickel production reflecting the continued ramp-up of
production from Cerro Matoso Line 2 (Colombia) improved results. Benefits from
ongoing improvement programs at both Cerro Matoso and QNI (Australia) and the
impact of the weaker average Rand/US$ exchange rates on operating costs also had
a favourable impact on profits.
Group and Unallocated
Corporate overheads for the half-year decreased by US$24 million (after taking
account of inflation and exchange impacts) to US$100 million. Losses on legacy
A$/US$ currency hedging also decreased to US$95 million from US$176 million in
the corresponding period, which were partly offset by the unfavourable impact of
one-off items.
Equity Minority Interests
The share of net profit or loss attributable to equity minority interests was
US$17 million compared with US$22 million in the corresponding period.
Dividend
On 4 December 2002, a dividend of 7.0 US cents per share was paid to BHP
Billiton Limited and BHP Billiton Plc shareholders, which represents an increase
of 7.7% compared with the corresponding period. The BHP Billiton Limited
dividend was fully franked for Australian taxation purposes.
Dividends for the BHP Billiton group are determined and declared in US dollars.
However, BHP Billiton Limited dividends are mainly paid in Australian dollars
and BHP Billiton Plc dividends are mainly paid in sterling to shareholders on
the UK section of the register and South African rand to shareholders on the
South African section of the register.
Capital Management
The Group`s inaugural Eurobond issue, under the US$1.5 billion Euro Medium Term
Note programme established in June 2002, took place in early October 2002. The
issue of _750 million five year notes, which were swapped into US dollars, was
oversubscribed and priced at the lower end of market expectations. The success
of this issue, in light of the then prevailing market conditions, is a clear
reflection of the Group`s strong credit profile.
The US$1.25 billion 364 day revolving credit component of the US$2.5 billion
syndicated multi-currency revolving credit facility that was due for expiry in
September 2002 was extended for a further period of 364 days to September 2003.
In October 2002, Moody`s Investor Services upgraded the Group`s long term credit
rating to A2 from A3 and short term credit rating to P-1 from P-2. This upgrade
reflects the successful combination of the Group`s operations following the
merger in June 2001, the benefit of a substantially diversified portfolio and
our continued focus on maintaining disciplined financial policies. Standard &
Poor`s rating for the Group remains on positive watch after being upgraded in
September 2001 to its current long term credit rating of A and short term credit
rating of A-1.
Merger Benefits and Further Cost Savings
During the year ended 30 June 2002, merger benefits (before one-off costs) of
US$220 million were delivered. A further US$65 million of merger-related
benefits have been achieved during the six months to 31 December 2002, bringing
the total to US$285 million. This exceeds our target for merger synergies, set
at the time of the merger, of US$270 million by the end of financial year 2003,
and has been achieved six months ahead of schedule. One-off costs of US$130
million in total were incurred to deliver these on-going annual benefits, US$15
million of which were incurred in the current period.
A further target, to achieve additional annual cost savings and efficiency gains
of US$500 million by June 2005, was set in our Strategic Framework last April.
This target, to be measured by looking at commodity based unit costs using the
year ended 30 June 2001 as the base year, will be delivered through the
continuation of our Operating Excellence programme and productivity
improvements, ongoing strategic sourcing and marketing initiatives. During the
six months to December 2002, we achieved savings and efficiency gains of US$70
million in addition to the merger benefits set out above, largely as a result of
Operating Excellence initiatives in our Aluminium, Base Metals and Stainless
Steel Materials CSGs and other productivity gains in our Aluminium and Diamonds
and Specialty Products CSGs.
Cash Flows
Net operating cash flows (after interest and tax) remained strong at US$1,189
million.
Expenditure on growth projects and investments amounted to US$1,020 million,
including Petroleum projects in the Gulf of Mexico, the Mt Arthur North energy
coal project in Australia, the ROD oil and Ohanet wet gas projects in Algeria,
the Mining Area C, Yandi and Port and Capacity Expansion (PACE) iron ore
projects in Australia, the Hillside 3 expansion in South Africa and the Mozal 2
expansion in Mozambique. Maintenance capital expenditure was US$223 million and
exploration expenditure was US$130 million. These outflows were offset by the
proceeds on demerger of the Group`s Steel business of US$272 million, proceeds
on the sale of the residual 6% share in BHP Steel after demerger of US$75
million, the repayment of loans by equity accounted associates of US$90 million,
and proceeds from sale of property plant and equipment totalling US$33 million,
contributed to an investing cash outflow of US$903 million. Whilst not reflected
in cash flows, US$232 million of debt was retained by BHP Steel upon demerger.
After dividend payments of US$855 million (up from US$815 million in the prior
half year), financing cash outflows were US$536 million.
Net debt comprises US$7,937 million of total debt offset by US$874 million of
cash, including money market deposits.
Financial Ratios
At 31 December 2002 BHP Billiton`s gearing ratio was 36.7% compared to 33.7% at
30 June 2002.
Based on earnings before interest and tax (EBIT), interest cover for the half
year was 7.3 times compared to 7.2 times for the half year ended 31 December
2001. Based on earnings before interest, tax and depreciation (EBITDA),
interest cover for the half year was 11.4 times compared with 10.4 times in the
corresponding period.
Profit from ordinary activities before tax as a percentage of revenue was 17.5%
for the half year ended 31 December 2002 compared with 19.2% for the
corresponding period.
Net profit as a percentage of equity was 15.0% for the half year ended 31
December 2002 compared to 18.6% in the corresponding period.
Net tangible assets per fully paid share were US$1.84 as at 31 December 2002
compared with $2.01 as at 31 December 2001.
Outlook
In general, London Metals Exchange commodity prices showed improvement during
the December 2002 quarter. Prices continued to show some improvement in the
opening weeks of calendar 2003. Prices for oil have risen as a result of the
ongoing uncertainty in the Middle East and Venezuela, while steel making raw
materials are well positioned to benefit from strong North East Asian and, in
particular, Chinese demand.
The global economy continues to encounter both economic and geo-political
tensions. Despite continued buoyancy in China, the Organisation for Economic
Cooperation and Development (OECD) leading indicator is signalling continued
weakness in global industrial production.
In the short term, the uncertainty regarding developments in the Middle East,
continued high oil prices and weak global equity markets are weighing heavily on
consumer and business sentiment with the latter delaying the new investment
spending and employment growth needed before there will be any sustained
improvement in the world economy. Demand in China, an important influence on
many of our products, continues to be strong.
Despite this uncertain outlook, our diversified portfolio of high quality assets
provides relatively stable cashflows, leaving us well placed to continue to
invest in value adding opportunities and to prosper from any uptick in economic
activity.
Significant Events After End of Half Year
No matter or circumstance has arisen since the end of the half year that
significantly affected or may significantly affect the operations, the results
of operations or state of affairs of the Group in subsequent financial periods.
Board of Directors
The Directors of the Company in office during or since the end of the half year
are:
Mr D R Argus - Chairman since April 1999 (on the Board of Directors since
November 1996)
Mr D A Crawford - a Director since May 1994
Mr M A Chaney - a Director since May 1995
Dr D A Jenkins - a Director since March 2000
Dr J M Schubert - a Director since June 2000
Mr C W Goodyear - an Executive Director since November 2001
Mr B P Gilbertson - an Executive Director since June 2001, resigned
5 January 2003
Dr D C Brink - a Director since June 2001
Mr C A Herkstrter - a Director since June 2001
Lord Renwick of Clifton - a Director since June 2001
Dr John Buchanan - a Director since February 2003
On 24 February 2003, the Board announced the appointment of Mr Miklos Salamon as
an Executive Director to the Board of Directors, with immediate effect.
Rounding of amounts
The Company is a company of a kind referred to in Class Order No. 98/0100 dated
10 July 1998 issued by the Australian Securities and Investments Commission.
Amounts in this report, unless otherwise indicated, have been rounded in
accordance with that Class Order to the nearest million dollars.
Signed in accordance with a resolution of the Board.
D R Argus
Chairman
Dated in Melbourne this 24th day of February 2003.
Interim Condensed Financial Statements
For The Half Year Ended 31 December 2002
Statement of Financial Performance
For the half year ended 31 December 2002
Half year Half year
ended ended
31 December 31 December
2002 2001
Notes US$M US$M (a)
Revenue from ordinary activities
Sales revenue 4 7 056 8 067
Other revenue 4 221 758
8 7 277 8 825
deduct
Expenses from ordinary activities, 5 5 140 6 136
excluding depreciation,
amortisation and borrowing costs
add
Share of net profit of associated
entities accounted for using the 10 89 150
equity method
2 226 2 839
deduct
Depreciation and amortisation 6 807 884
Borrowing costs 7 144 259
Profit from ordinary activities 8 1 275 1 696
before income tax
deduct
Income tax expense attributable to 367 497
ordinary activities
Net profit 908 1 199
deduct
Outside equity interests in net 17 22
profit of controlled entities
Net profit attributable to members 891 1 177
of the BHP Billiton Group
Net exchange fluctuations on 39 26
translation of foreign currency net
assets and foreign currency
interest bearing liabilities net of
tax
Total direct adjustments to equity 39 26
attributable to members of the BHP
Billiton Group
Total changes in equity other than 930 1 203
those resulting from transactions
with owners
Basic earnings per share (US cents) 14.4 19.5
(a) (b)
Diluted earnings per share (US 14.3 19.5
cents) (a) (b)
(a) Effective July 2002, the BHP Steel business was demerged from the BHP
Billiton Group. The Statement of Financial Performance for the half-year ended
31 December 2001 includes results pertaining to BHP Steel. Refer note 3
"Discontinued Operations".
(b) Basic earnings per share are calculated based on 6 201 million (31 December
2001: 6 024 million) weighted average number of shares. Diluted earnings per
share are calculated based on 6 219 million (31 December 2001: 6 040 million)
weighted average number of shares.
Under the terms of the DLC merger, the rights to dividends of a holder of an
ordinary share in BHP Billiton Plc and a holder of an ordinary share in BHP
Billiton Limited are identical. Consequently, earnings per share has been
calculated on the basis of the aggregate number of ordinary shares ranking for
dividend. The weighted average number of shares used for the purposes of
calculating basic earnings per share is calculated after deduction of the shares
held by the share repurchase scheme and the Billiton Employee Share Ownership
Trust.
The weighted average diluted number of ordinary shares has been adjusted for the
effect of Employee Share Plan options, Executive Share Scheme partly paid shares
and Performance Rights to the extent they were dilutive at balance date. Refer
note 13 for details of shares issued under these plans.
The accompanying notes form part of these interim condensed financial
statements.
Statement of Financial Position
As at 31 December 2002
As at As at As at
31 30 June 31
December 2002 December
2002 2001
Notes US$M US$M (a) US$M (a)
Current assets
Cash assets 16 874 1 499 661
Receivables 2 126 2 294 2 048
Other financial assets 107 117 175
Inventories 1 294 1 509 1 550
Other assets 163 108 155
Total current assets 4 564 5 527 4 589
Non-current assets
Receivables 804 889 661
Investments accounted
for using the equity 1 538 1 505 1 492
method
Other financial assets 480 581 505
Inventories 51 80 77
Property, plant and 16 086 17 304 16 813
equipment
Exploration, evaluation
and development 11 2 180 2 180 1 820
expenditure
Intangible assets 488 513 536
Deferred tax assets 434 480 422
Other assets 834 803 717
Total non-current assets 22 895 24 335 23 043
Total assets 27 459 29 862 27 632
Current liabilities
Payables 2 072 2 435 1 885
Interest bearing 1 269 1 797 1 217
liabilities
Tax liabilities 354 493 270
Other provisions 609 1 116 512
Total current 4 304 5 841 3 884
liabilities
Non-current liabilities
Payables 112 121 131
Interest bearing 6 668 6 383 6 807
liabilities
Deferred tax liabilities 1 365 1 600 1 355
Other provisions 2 802 2 764 2 462
Total non-current 10 947 10 868 10 755
liabilities
Total liabilities 15 251 16 709 14 639
Net assets 12 208 13 153 12 993
Equity
Contributed equity - BHP 12 1 759 3 143 3 065
Billiton Limited
Called up share capital 12 1 752 1 752 1 752
- BHP Billiton Plc
Reserves 334 471 479
Retained profits 14 8 055 7 455 7 369
Total BHP Billiton 11 900 12 821 12 665
interest
Outside equity interest 308 332 328
Total equity 15 12 208 13 153 12 993
(a) Effective July 2002, the BHP Steel business was demerged from the BHP
Billiton Group. The Statement of Financial Position as at 31 December 2001 and
30 June 2002 include BHP Steel assets and liabilities accordingly. Refer note 3
"Discontinued Operations".
The accompanying notes form part of these interim condensed financial
statements.
Statement of Cash Flows
For the half year ended 31 December 2002
Half year Half year
ended ended
31 December 31 December
2002 2001
Notes US$M US$M (a)
Cash flows related to operating
activities
Receipts from customers 6 928 8 411
Payments to suppliers, employees, (5 228) (6 480)
etc.
Dividends received 84 69
Interest received 6 47
Borrowing costs (170) (298)
Other 109 134
Operating cash flows before income 1 729 1 883
tax
Income taxes paid net of refunds (540) (400)
received
Net operating cash flows 1 189 1 483
Cash flows related to investing
activities
Purchases of property, plant and (1 191) (1 080)
equipment
Exploration expenditure (130) (202)
Purchases of investments and (52) (47)
funding of joint ventures
Purchases of, or increased - (45)
investment in, controlled entities
and joint venture interests net of
their cash
Investing cash outflows (1 373) (1 374)
Proceeds from sale of property, 33 144
plant and equipment
Proceeds from sale or redemption of 165 36
investments
Proceeds from sale, or partial 272 130
sale, of controlled entities and
joint venture interests net of
their cash
Net investing cash flows (903) (1 064)
Cash flows related to financing
activities
Proceeds from ordinary share 147 31
issues, etc.
Proceeds from interest bearing 2 878 3 659
liabilities
Repayment of interest bearing (2 695) (3 511)
liabilities
Redemption of secured Employee - (134)
Share Plan program
Purchase of shares under Share Buy- - (19)
Back program
Dividends paid (855) (815)
Other (11) 11
Net financing cash flows (536) (778)
Net decrease in cash and cash (250) (359)
equivalents
Cash and cash equivalents at 990 998
beginning of the half year
Effect of foreign currency exchange
rate changes on cash and cash 18 (6)
equivalents
Cash and cash equivalents at end of 16 758 633
the half year
(a) Effective July 2002, the BHP Steel business was demerged from the BHP
Billiton Group. The Statement of Cash Flows for the half-year ended 31 December
2001 includes cash flows pertaining to BHP Steel. Refer note 3 "Discontinued
Operations".
The accompanying notes form part of these interim condensed financial
statements.
Notes to Financial Statements
NOTE 1. BASIS OF PREPARATION OF INTERIM CONDENSED FINANCIAL STATEMENTS, DUAL
LISTED COMPANY STRUCTURE AND ACCOUNTING POLICIES
Basis of preparation of interim financial statements
These statements are general purpose interim consolidated financial statements
that have been prepared in accordance with the requirements of the Corporations
Act 2001, Australian Stock Exchange Listing Rules, Australian Accounting
Standard AASB 1029 "Interim Financial Reporting" and Urgent Issues Group
Consensus Views, and give a true and fair view of the matters disclosed. These
interim financial statements and reports should be read in conjunction with the
annual financial statements for the year ended 30 June 2002 and any public
announcements made by the BHP Billiton Group and its controlled entities during
the half year in accordance with continuous disclosure obligations arising under
the Corporations Act 2001 and Australian Stock Exchange Listing Rules. The
notes to the financial statements do not include all information normally
contained within the notes to an annual financial report.
Merger terms
On 29 June 2001, BHP Billiton Limited (previously known as BHP Limited), an
Australian listed Company, and BHP Billiton Plc (previously known as Billiton
Plc), a UK listed Company, entered into a Dual Listed Companies (DLC) merger.
This was effected by contractual arrangements between the companies and
amendments to their constitutional documents.
The effect of the DLC merger is that BHP Billiton Limited and its subsidiaries
(the BHP Billiton Limited Group) and BHP Billiton Plc and its subsidiaries (the
BHP Billiton Plc Group) operate together as a single economic entity (the BHP
Billiton Group), with neither assuming a dominant role. Under the arrangements:
The shareholders of BHP Billiton Limited and BHP Billiton Plc have a common
economic interest in both groups;
The shareholders of BHP Billiton Limited and BHP Billiton Plc take key
decisions, including the election of Directors, through a joint electoral
procedure under which the shareholders of the two companies effectively vote on
a joint basis;
BHP Billiton Limited and BHP Billiton Plc have a common Board of Directors, a
unified management structure and joint objectives;
Dividends and capital distributions made by the two companies are equalised; and
BHP Billiton Limited and BHP Billiton Plc each executed a deed poll guarantee,
guaranteeing (subject to certain exceptions) the contractual obligations
(whether actual or contingent, primary or secondary) of the other incurred after
29 June 2001 together with specified obligations existing at that date.
If either BHP Billiton Limited or BHP Billiton Plc proposes to pay a dividend to
its shareholders, then the other Company must pay a matching cash dividend of an
equivalent amount per share to its shareholders. If either Company is prohibited
by law or is otherwise unable to declare, pay or otherwise make all or any
portion of such a matching dividend, then BHP Billiton Limited or BHP Billiton
Plc will, so far as it is practicable to do so, enter into such transactions
with each other as the Boards agree to be necessary or desirable so as to enable
both Companies to pay dividends as nearly as practicable at the same time.
The DLC merger did not involve the change of legal ownership of any assets of
BHP Billiton Limited or BHP Billiton Plc, any change of ownership of any
existing shares or securities of BHP Billiton Limited or BHP Billiton Plc, the
issue of any shares or securities or any payment by way of consideration, save
for the issue by each Company of one special voting share to a trustee company
which is the means by which the joint electoral procedure is operated. In
addition, to achieve a position where the economic and voting interests of one
share in BHP Billiton Limited and one share in BHP Billiton Plc were identical,
BHP Billiton Limited made a bonus issue of ordinary shares to the holders of its
ordinary shares.
NOTE 1. BASIS OF PREPARATION OF INTERIM FINANCIAL STATEMENTS, DUAL LISTED
COMPANY STRUCTURE AND ACCOUNTING POLICIES continued
Treatment of the DLC merger for accounting purposes
In accordance with the Australian Investments and Securities Commission (ASIC)
Practice Note 71 `Financial Reporting by Australian Entities in Dual-Listed
Company Arrangements`, and an order issued by ASIC under section 340 of the
Corporations Act 2001 on 2 September 2002, this interim report presents the
financial results of the BHP Billiton Group as follows:
Results for the half years ended 31 December 2002 and 31 December 2001 are for
the combined entity including both BHP Billiton Limited and its subsidiary
companies and BHP Billiton Plc and its subsidiary companies; and
Results are presented in US dollars unless otherwise stated.
Accounting policies
Accounting standards and policies have been consistently applied by all entities
in the BHP Billiton Group in the half year ended 31 December 2002 and are
consistent with those applied in the half year ended 31 December 2001 and the
full year ended 30 June 2002.
As a consequence of the enactment of Australian tax consolidation legislation
and since the consolidated tax groups within the BHP Billiton Group have not
notified the Australian Taxation Office at the date of signing this report of
the implementation date for tax consolidation, BHP Billiton Group has applied
UIG 39 "Effect of Proposed Tax Consolidation Legislation on Deferred Tax
Balances".
NOTE 2. SIGNIFICANT ITEMS
Individually significant items (before outside equity interests) included within
the BHP Billiton Group net profit are detailed below.
Gross Tax Net
US$M US$M US$M
Half year ended 31 December 2002
Loss upon sale of 6% interest in (19) - (19)
BHP Steel
Total by category (19) - (19)
Discontinued Operations (19) - (19)
Total by Customer Sector Group (19) - (19)
No significant items are included in the results for the half-year ended 31
December 2001.
NOTE 3. DISCONTINUED OPERATIONS
Effective July 2002, the BHP Steel business demerged from the BHP Billiton
Group. The demerger of BHP Steel effectively brings to an end the BHP Billiton
Group`s involvement as a steel producer and follows the demerger of the OneSteel
business in October 2000 and the disposal of other steel operations, such as the
US West Coast Steel businesses in June 2000.
Prior to the demerger, BHP Steel was the leading steel company in Australia and
New Zealand, specialising in the production of flat steel products, including
slab, hot rolled coil, plate and value-added metallic coated and pre-painted
steel products. The Company supplied customers in Australia, New Zealand, Asia,
the US, Europe, the Middle East and the Pacific. Key steelmaking assets were the
low-cost global scale Port Kembla Steelworks (Australia), BHP New Zealand Steel
and North Star BHP Steel (US). A network of metallic coating and coil painting
facilities operated in Australia, New Zealand and South East Asia.
The financial performance of the Discontinued Steel business (including the loss
upon sale of 6% interest in BHP Steel retained by BHP Billiton), as included in
the Statement of Financial Performance, is detailed as follows:
Discontinued Steel business Half year Half year
ended ended
31 December 31 December
2002 2001
US$M US$M
Financial Performance
Revenue from ordinary activities 75 1 157
before interest income
Expenses from ordinary activities, (94) (1 131)
excluding borrowing costs
Profit from ordinary activities (19) 26
before net borrowing costs and income
tax
While the BHP Billiton Group operates its treasury function on a Group basis,
certain financing arrangements not reported in the Steel segment can be
attributed to the discontinued Steel operations. Not included within revenue
from ordinary activities is interest income of US$6 million. The borrowing costs
associated with attributable debt instruments was US$8 million. The income tax
expense related to the discontinued operation, including the tax impact on
financing arrangements included above, was US$3 million.
The contribution to Group cash flows of these businesses, before consideration
of borrowing costs and income tax, as included in the Statement of Cash Flows,
is detailed as follows:
Discontinued Steel business Half year Half year
ended ended
31 December 31 December
2002 2001
US$M US$M
Cash Flows
Net operating cash flows (excluding - 107
borrowing activities and income tax)
Net investing cash flows (a) 74 (5)
Net financing cash flows - 25
Total cash flows provided by 74 127
discontinued operations
Includes US$75 million in proceeds from the sale of 6% of BHP Steel and US$1
million in costs associated with the sale.
NOTE 3. DISCONTINUED OPERATIONS continued
The attributable net assets of BHP Steel as included in the Statement of
Financial Position is provided below. In addition, the net assets demerged in
July 2002, which are equivalent to the balances held at 30 June 2002, are also
provided, after allowing for the settlement of intercompany loans by BHP Steel
to the BHP Billiton Group.
Discontinued Steel business As at As at
31 30 June
December 2002
2002 US$M
US$M
Financial Position (a)
Total assets - 2 732
Total liabilities - (841)
Outside equity interests - (21)
Total equity - 1 870
Net payments to the BHP Billiton Group by BHP (294)
Steel to settle intercompany loans (post 30
June 2002)
Net assets of BHP Steel 1 576
Elimination of intercompany profits in (9)
inventory
Attributable net assets of BHP Steel demerged 1 567
(a) Includes certain assets and liabilities (primarily cash, interest bearing
liabilities and taxation provisions), which are not allocated to Steel for
segment reporting purposes.
The impact on the BHP Billiton Group of the demerger of BHP Steel business in
July 2002 was as follows:
The BHP Billiton Group`s capital was reduced by US$1,489 million, including
US$17 million of costs (net of tax; US$24 million before tax) directly
associated with the demerger. The capital reduction takes into account the
transfer to BHP Billiton Limited shareholders of 94 percent of the shares of BHP
Steel. The remaining 6 percent of BHP Steel shares held by the Group were
subsequently sold;
A bonus issue of BHP Billiton Plc shares to BHP Billiton Plc
shareholders as a Matching Action to ensure economic benefit
equality between shareholders of both BHP Billiton Limited and BHP
Billiton Plc. The bonus issue resulted in one BHP Billiton Plc
share being issued for approximately each 15.6 BHP Billiton Plc
shares held;
A cash inflow of US$347 million, representing US$294 million from the settlement
by BHP Steel of intercompany loans, less US$22 million demerger transaction
costs paid. US$75 million from the sale of the 6 percent interest in BHP Steel
is included in proceeds from sale or redemption of investments; and
