| Wed 16 Feb 2005, 8:33 | | RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2004 |
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BHP BILLITON PLC
Registration number 3196209
Registered in England and Wales
SHARE CODE: BIL
ISIN: GB0000566504
BHP BILLITON RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2004
- Record half yearly EBITDA, EBIT and attributable profit.
- EBITDA increase of 67% to US$5.2 billion, and EBIT increase of 95% to US$4.3
billion (both excluding exceptional items).
- Attributable profit of US$2.8 billion, an increase of 127%, and earnings per
share of 44.5 US cents, an increase of 128% compared with the prior period (both
excluding exceptional items).
- Record half yearly production volumes for six major commodities.
- Available cash flow of US$3.5 billion, an increase of 116%.
- Commissioning of six major projects since 30 June 2004, with a further ten
major projects in development.
- Successful completion of the US$2 billion capital management programme
including the US$1.8 billion off-market buy-back in BHP Billiton Limited and
rebasing the interim dividend.
- Interim dividend rebased to 13.5 US cents per share, an increase of 69% on the
prior period interim dividend.
2004 2003
Half year ended 31 December US$M US$M Change
Turnover (1) 15 521 10 963 41.6%
EBITDA (1) (2) (3) 5 212 3 128 66.6%
EBIT (1) (2) (3) 4 258 2 183 95.1%
Attributable profit (excluding 2 757 1 213 127.3%
exceptional items) (1)
Attributable profit (including 2 813 1 339 110.1%
exceptional items) (1)
Available cash flow (4) 3 513 1 625 116.2%
Basic earnings per share (US cents) 44.5 19.5 128.2%
(excluding exceptional items) (1)
Basic earnings per share (US cents) 45.4 21.5 111.2%
(including exceptional items) (1)
EBITDA interest coverage (times) 33.6 14.8 127.0%
(1) (2) (3) (5)
Dividend per share (US cents) 13.5 8.0 68.8%
(1) Including the Group`s share of joint ventures.
(2) Excluding exceptional items.
(3) EBIT is earnings before interest and tax. EBITDA is EBIT before
depreciation, impairments, and amortisation of US$954 million (comprising Group
depreciation, impairments and amortisation of US$881 million and joint venture
and associate depreciation and amortisation of US$73 million) for the half year
ended 31 December 2004 and US$945 million (comprising Group depreciation,
impairments and amortisation of US$862 million and joint venture and associate
depreciation and amortisation of US$83 million) for the half year ended 31
December 2003. We believe that EBIT and EBITDA provide useful information, but
should not be considered as an indication of, or alternative to, attributable
profit as an indicator of operating performance or as an alternative to cash
flow as a measure of liquidity.
(4) Available cash flow is operating cash flow including dividends from joint
ventures and associates and after net interest and tax.
(5) For this purpose, net interest includes capitalised interest and excludes
the effect of discounting on provisions and other liabilities, and exchange
differences arising from net debt.
The above financial results are prepared in accordance with UK generally
accepted accounting principles (GAAP) and are unaudited. Financial results in
accordance with Australian GAAP are provided on page 28. All references to the
corresponding period are to the half year ended 31 December 2003.
RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2004
Commentary on the Group Interim Results
Introduction
The record financial result for the half year ended 31 December 2004 is a
reflection of the continued consistent execution of our strategy. The focus on
the efficient operation of our high quality, diversified asset base, the
development of short and long term growth options and our customer focused
marketing has enabled us to fully capture the opportunity provided from strong
demand conditions. Attributable profit was US$2.8 billion (excluding exceptional
items), an increase of 127% on the corresponding period.
The commissioning of a number of growth projects in recent years has provided
leverage to strong customer demand. Along with operational improvements
resulting from the continued deployment of our Operating Excellence initiatives,
these new projects contributed to the achievement of half yearly production
records for six major commodities within our portfolio at a time when customer
demand has strengthened considerably. With completion of the fourth processing
train in the North West Shelf, the commissioning of an additional five projects
commencing production in recent weeks and the approval of two major new projects
during the current period, our capacity to respond to the growth in demand for
raw materials is further enhanced and augurs well for future periods.
We currently have ten major projects and four smaller projects in development
across a range of commodities, and an additional twelve projects where
feasibility studies are underway. In total our project pipeline, which includes
approved projects and projects in feasibility, now represents US$10.2 billion of
value accretive investment options. Notwithstanding this sizeable planned
investment, our strong cash flow allowed us to execute the first stage of our
planned US$2 billion capital management programme, returning US$1.78 billion to
shareholders during the half year, via an off-market share buy-back of BHP
Billiton Limited shares. The remaining US$220 million (3.6 US cents per share)
will be distributed as part of the interim dividend, which the Board declared
today at 13.5 US cents per share. This is an increase of 69% over last year`s
interim dividend and a 42% increase from the dividend declared in August 2004.
BHP Billiton intends to continue with its progressive dividend policy using this
rebased dividend level as the starting reference point for future periods. This
rebasing of the dividend is a sign of the confidence we have in the medium term
outlook and our ability to consistently deliver earnings and cash flow to
support this higher level of dividend payment.
The Income Statement
Earnings excluding exceptional items
Turnover (including turnover from third party products) was US$15.5 billion, an
increase of 41.6% from US$11.0 billion in the corresponding period. The increase
was primarily due to higher prices for all commodities with base metals, carbon
steel materials, petroleum and coal prices contributing significantly. Sales of
third party products increased 44.8% to US$4.1 billion.
Earnings before interest, tax, depreciation, impairments and amortisation
(EBITDA), excluding exceptional items, increased by 66.6% to US$5.2 billion from
US$3.1 billion in the corresponding period. Earnings before interest and
taxation (EBIT), excluding exceptional items, were US$4.3 billion compared with
US$2.2 billion for the corresponding period.
The following table and commentary detail the approximate impact of the
principal factors that affected earnings before interest and taxation for the
current half year compared with the corresponding period were:
US$ Million
EBIT excluding exceptional items for the half year ended 2 183
31 December 2003
Change in volumes 150
Change in sales prices 3 035
New operations 30
Exchange rates (340)
Price-linked costs (235)
Costs (255)
Inflation on costs (110)
Asset sales (45)
Ceased and sold operations (15)
Exploration (10)
Other (130)
EBIT excluding exceptional items for the half year ended
31 December 2004 4 258
Volumes
Higher sales volumes increased EBIT by US$265 million, primarily from copper,
aluminium, iron ore, natural gas and manganese ore, partially offset by lower
oil volumes. The net positive impact on EBIT was US$150 million, using prior
period margins. The change in volume at current period prices added US$490
million to turnover.
Prices
Higher commodity prices across all products increased EBIT by US$3,035 million
with copper, petroleum products, energy coal, manganese ore and alloys,
metallurgical coal, aluminium, diamonds, iron ore, ferrochrome and nickel prices
making significant contributions.
New operations
New operations increased EBIT by US$30 million due to a full period of operation
from the Ohanet wet gas development in Algeria which commenced commercial
production in October 2003.
Exchange rates
Strengthening exchange rates had an overall unfavourable impact on EBIT of
US$340 million. This was primarily due to stronger A$/US$ and rand/US$ average
exchange rates on operating costs of US$200 million and an unfavourable impact
of US$65 million from the conversion of rand and Australian dollar denominated
net monetary liabilities. The prior period included gains on legacy A$/US$
currency hedging of US$30 million which expired in the year ended 30 June 2004.
Currency Half year Half year
ended ended 31 Dec 30 June 31 Dec
31 Dec 31 Dec 2004 2004 2003
2004 2003 closing closing closing
average average
Australian dollar 0.73 0.69 0.78 0.69 0.75
South African rand 6.21 7.08 5.65 6.27 6.62
Costs
Higher price-linked costs decreased EBIT by US$235 million, mainly due to
increased taxes on petroleum products, higher royalty costs, and higher LME-
linked costs.
Increased costs of US$255 million were primarily driven by higher operating and
raw material costs, and increased demurrage, stripping and maintenance costs,
partly offset by continued operating cost savings.
Rising input costs, principally in South Africa and Australia, increased costs
by US$110 million.
Asset sales
The prior period`s EBIT was higher by US$45 million due to higher profits on the
sale of non-core assets.
Ceased and sold operations
The prior period included a favourable impact from ceased and sold operations on
EBIT of US$15 million.
Exploration
Exploration expense was US$10 million higher than in the prior period.
Other
Other items totalling US$130 million include the unfavourable impact of ceased
production at Boodarie Iron in Western Australia, where operations are currently
being transitioned to care and maintenance.
Net interest expense
Net interest expense fell from US$294 million to US$259 million, despite higher
US dollar interest rates during the period. This was principally driven by lower
average debt levels and increased interest income from higher average cash
balances compared to the corresponding period. This was partially offset by
higher expense from discounting of provisions, and lower capitalisation of
interest as several projects move into production phase. Included in net
interest were exchange losses on net debt of US$69 million, mainly relating to
the translation of rand denominated debt. This compares with losses of US$89
million in the corresponding period.
Taxation expense
The tax charge on earnings was US$1,131 million, representing an effective rate
of 28.3%. Excluding the impacts of non tax-effected foreign currency
adjustments, translation of tax balances and other functional currency
translation adjustments, mainly attributable to the strengthening of both the
rand and Australian dollar against the US dollar during the period, the
effective rate was 27.3%. When compared to the UK and Australian statutory tax
rate (30%), the underlying effective tax rate benefited 4.4% due to the
recognition of tax losses (US$175 million) in the US. In addition, investment
incentives and development entitlements were recognised during the period offset
by non-deductible accounting depreciation and amortisation, non-deductible
expenditures, overseas tax rate differential and other items.
Exceptional items
Earnings before interest and tax were increased by an exceptional item of US$56
million from the completion of the sale in December 2004 of an equity
participation in the North West Shelf (NWS) Project in Western Australia to
China National Offshore Oil Corporation (CNOOC). Under the agreement, CNOOC
purchased an interest in a new joint venture that has been established within
the NWS Project to supply LNG to the Guangdong LNG Project in China. CNOOC has
acquired a 5.3% title interest in NWS Project production licences, retention
leases and the exploration permit relating to natural gas, but excluding oil
(equivalent to 5.8% of BHP Billiton`s share of current remaining proved natural
gas reserves). CNOOC paid each joint venture partner US$59 million, resulting in
a profit on sale of US$56 million (no tax effect). CNOOC`s rights to process its
gas and associated LPG and condensate through the NWS Project offshore and
onshore infrastructure are contained in a separate agreement.
The corresponding period included an exceptional gain relating to the settlement
of a litigation matter with Dalmine SpA of US$66 million (before tax expense of
US$18 million) and an exceptional tax benefit of US$78 million relating to the
introduction of the tax consolidation regime in Australia.
Earnings per share
Basic earnings per share excluding exceptional items were 44.5 US cents per
share compared to 19.5 US cents per share in the corresponding period, an
increase of 128.2%.
Basic earnings per share including exceptional items were 45.4 US cents per
share compared to 21.5 US cents per share in the corresponding period, an
increase of 111.2%.
Cash Flows
Available cash flow after interest and tax increased by 116.2% to US$3.5
billion. The key components of this increase were increased cash generated from
operating activities (mainly due to higher profits), partly offset by increased
taxation payments.
Spending on capital, exploration and investment expenditures totalled US$1,740
million for the period. Expenditure on growth projects and investments amounted
to US$1,111 million, including US$433 million on petroleum projects and US$678
million on minerals projects. Sustaining and maintenance capital expenditure
was US$430 million. In addition, the current period includes US$1.78 billion
distributed to shareholders as part of the US$2 billion capital management
programme.
Net debt at 31 December 2004 was US$5.5 billion, an increase of US$0.6 billion
for the period. Net debt at 31 December 2003 was US$6.5 billion. Gearing, which
is the ratio of net debt to net debt plus net assets, was 27.2% at 31 December
2004, compared with 32.8% at 31 December 2003.
Dividend
An interim dividend for the half year ended 31 December 2004 of 13.5 US cents
per share will be paid to shareholders on 23 March 2005. This dividend includes
US$220 million (3.6 US cents per share) to complete the US$2 billion capital
management programme announced in August 2004. BHP Billiton intends to continue
with its progressive dividend policy using this rebased dividend level as the
starting reference point for future periods. This rebasing of the dividend is
also a sign of the confidence we have in the ability to consistently deliver
earnings and cash flow to support this higher level of dividend payment in the
years ahead.
The dividend paid by BHP Billiton Limited will be 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 pounds
sterling to shareholders on the UK section of the register and South African
rand to shareholders on the South African section of the register. The foreign
currency exchange rates applicable two business days before the declaration of
the dividend were used for conversion of currencies. These rates are detailed
in the table below.
The timetable in respect of this dividend will be:
Currency conversion 14 February 2005
Last day to trade JSE Securities Exchange
South Africa (JSE) 25 February 2005
Ex-dividend Australian Stock Exchange (ASX) 28 February 2005
Ex-dividend JSE Securities Exchange
South Africa (JSE) 28 February 2005
Ex-dividend London Stock Exchange (LSE) 2 March 2005
Record 4 March 2005
Payment 23 March 2005
American Depositary Shares (ADSs) each represent two fully paid ordinary shares
and receive dividends accordingly.
BHP Billiton Plc shareholders registered on the South African section of the
register will not be able to dematerialise or rematerialise their shareholdings,
nor will transfers between the UK register and the South African register be
permitted, between the dates of 28 February 2005 and 4 March 2005.
The following table details the currency exchange rates applicable for the
dividend:
Dividend 13.5 US Exchange Dividend per
cents Rate ordinary share in
local currency
Australian cents 0.787068 17.152266
British pence 1.884750 7.162754
South African 6.059289 81.800402
cents
New Zealand cents 0.716600 18.838962
Liquidity and Capital Management
In October 2004, Moody`s Investor Services upgraded BHP Billiton`s credit rating
from A2 to A1, reflecting the Group`s strengthened financial risk profile.
On 23 November 2004, the first phase of a US$2 billion capital management
programme was completed through an off-market share buy-back of 180.72 million
BHP Billiton Limited shares. The total amount of capital repurchased was
US$1.78 billion, or 2.9% of the issued BHP Billiton Group share capital. The
buy-back price of A$12.57 per share, represented a discount of 12% to the volume
weighted average price of BHP Billiton Limited shares over the five days up to
and including buy-back closing date. The remaining US$220 million will be
returned to shareholders as part of the interim dividend declared today.
Portfolio Management
As previously noted, we sold an equity participation in the North West Shelf
Project to China National Offshore Oil Corporation for proceeds of US$59
million. In addition, we announced the sale of our interests in the Laminaria
and Corallina Oil Fields (located in the Timor Sea) and our equity interest in
Integris Metals (US) during the current half year. We have also sold 50% of our
shareholding in Acerinox S.A. These transactions have been completed subsequent
to 31 December 2004 and will generate proceeds of US$130 million, US$205 million
and US$56 million, respectively.
Corporate Governance
The Group announced the appointment of Mr Carlos A Cordeiro to the BHP Billiton
Board effective 3 February 2005.
IFRS Implementation
The Group will commence reporting financial information in accordance with
International Financial Reporting Standards (IFRS) for financial periods
beginning on or after 1 July 2005. Selected financial information for the half
year to 31 December 2004 prepared in accordance with IFRS together with a
reconciliation from IFRS to UK Generally Accepted Accounting Principles, and
explanatory notes, are expected to be released in the second half of this fiscal
year as unaudited supplementary information.
Outlook
While the global economy slowed during the half year, GDP growth for calendar
2004 was one of the strongest in the last three decades. The real GDP growth
rate slowed in the September quarter - particularly in Japan, Germany, France
and the UK - and the rate of growth in OECD industrial production has continued
to decelerate. Although the reasons for the slowdown are varied and reflect the
particular circumstances for each economy, some common factors have been the
rise in oil prices, a tightening in economic policies and a slowing in export
growth. With the Chinese government taking steps to control growth in certain
areas of its economy during 2004, growth rates in China also slowed in the
second half.
Overall, while the pace of global economic growth may have slowed in recent
months, we remain of the view that the cycle is extendable and the global
economy will continue to experience an above trend growth rate in the coming
year. In particular, we expect that China will remain a large and sustainable
consumer of raw materials and resources as the government remains committed to
sustainable long-term development. For some commodities, inventory levels are
already at or close to historically low levels. Given this, together with
continued growing demand, it is likely that for many commodities, supply will
continue to fall short of demand over the coming year. Over time we expect this
situation will come into balance with the introduction of new supply, either
through new projects or the expansion of existing operations.
We will remain focussed on our strategy of maximising the operating performance
of our world class assets, reducing costs and improving efficiencies and
exercising the value accretive expansion options within our portfolio. Our
recent financial performance demonstrates how this has positioned us to take
advantage of the current strong demand for raw materials. The cash generating
ability of our existing assets allows us to continue with this approach whilst
remaining alert for opportunistic, value adding acquisitions. We also believe it
is critical that we continue to generate options to participate in value-added
opportunities to expand our activities as the prospects for demand growth become
apparent. To this end, it is possible that we will enter new production regions,
new markets with new customers and into new products where these add value and
are in line with our strategic objectives.
CUSTOMER SECTOR GROUP SUMMARY
The following table provides a summary of the Customer Sector Group results for
the half year ended 31 December 2004 and the corresponding period (before
exceptional items).
Half year ended Turnover (1) EBIT (1)
31 December
US$ Million)
2004 2003 Change 2004 2003 Change
Petroleum 3 171 2 245 41.2% 909 602 51.0%
Aluminium 2 615 2 023 29.3% 458 307 49.2%
Base Metals 2 353 1 351 74.2% 1 041 333 212.6%
Carbon Steel 3 229 2 206 46.4% 1 007 505 99.4%
Materials
Diamonds and 1 136 758 49.9% 317 195 62.6%
Specialty
Products
Energy Coal 1 640 1 242 32.0% 308 85 262.4%
Stainless Steel 1 013 744 36.2% 340 193 76.2%
Materials
Group and 411 429 (4.2)% (122) (37) N/A
unallocated items
(2)
Less: inter- (47) (35) N/A
segment turnover
BHP Billiton 15 521 10 963 41.6% 4 258 2 183 95.1%
Group
(1) Turnover and EBIT include trading activities comprising the sale of third
party product.
(2) Includes consolidation adjustments, unallocated items and external sales of
the Group`s freight, transport and logistics operations.
Petroleum
EBIT was US$909 million, an increase of US$307 million or 51% compared with the
corresponding period. The increase was a result of higher realised prices, where
the average realised oil price per barrel was US$44.85 compared to US$29.40, and
the average realised natural gas price per thousand standard cubic feet was
US$2.94 compared with US$2.37 in the corresponding period. In addition, lower
exploration expenditure and a smaller loss on third party trading activities
also had a favourable impact. The increase was offset by the unfavourable effect
of increased taxes on petroleum products, lower production volumes, with total
production for the period of 57.4 million barrels of oil equivalent, compared
with 62.4 million barrels of oil equivalent in the corresponding period, and the
translation impact of a stronger A$/US$ exchange rate on net monetary assets and
liabilities.
Exploration expenditure charged to profit was US$55 million representing a
capitalisation rate of 59.9% compared to a charge to profit of US$77 million and
a capitalisation rate of 49.7% in the corresponding period, and reflects timing
of exploration and appraisal activities.
Aluminium
EBIT was US$458 million, an increase of US$151 million or 49%, compared with the
corresponding period. The increase was mainly due to higher realised prices for
aluminium and alumina, and increased aluminium sales volumes. Average LME
aluminium prices increased to US$1,764 per tonne, compared with US$1,474 per
tonne in the corresponding period. Higher aluminium sales volumes resulted from
the full commissioning of Mozal 2 (Mozambique) and Hillside 3 (South Africa) in
August 2003 and December 2003 respectively, and from the return to full
production at the Alumar smelter following the July 2003 power supply failure.
This was partially offset by a once-off US$36 million charge for the agreed
cancellation of a discounted aluminium supply agreement, the unfavourable impact
on operating costs of strengthening A$/US$, rand/US$ and Brazilian real/US$
average exchange rates, higher LME price-linked costs, increased production
input costs and pot relining activity.
Base Metals
EBIT was US$1,041 million, an increase of US$708 million or 213% compared with
the corresponding period. This increase was mainly attributable to higher
average realised prices for copper of US$1.46/lb, compared with US$0.96/lb in
the corresponding period, higher copper sales volumes as well as higher average
realised prices for silver, lead and zinc. Record silver and lead production was
achieved for the current period and was a result of the continuation of the
Cannington (Australia) de-bottlenecking programme. These factors were partially
offset by higher input costs as well as the unfavourable translation impact on
operating costs and net monetary assets and liabilities of stronger A$/US$ and
Chilean peso/US$ average and closing exchange rates.
Carbon Steel Materials
EBIT was US$1,007 million, an increase of US$502 million or 99% compared with
the corresponding period. This increase was mainly attributable to stronger
commodity prices for all products combined with record production and sales
volumes for iron ore and manganese ore operations. Operating cost performance at
Australian and South African operations was unfavourably impacted by stronger
A$/US$ and rand/US$ average exchange rates and inflationary pressures compared
with the corresponding period. Queensland Coal operations (Australia) incurred
higher price-linked royalty costs, stripping costs linked to expansion projects
and increased demurrage costs. Western Australian iron ore operations
(Australia) also incurred higher demurrage costs as well as increased
depreciation charges for recently commissioned expansion projects offset by
higher capitalisation of stripping costs. Compared with the prior period, ceased
production at Boodarie Iron in Western Australia also had an unfavourable impact
on EBIT. Operations at Boodarie Iron are currently being transitioned to care
and maintenance status.
BHP Billiton has settled commercial terms for approximately three quarters of
its annually priced metallurgical coal contracts with prices increasing by an
average of 120% across all markets. For 70% of our contracts by volume the
increase is effective from 1 April 2005.
Diamonds and Specialty Products
EBIT was US$317 million, an increase of US$122 million or 63% compared with the
corresponding period. The increase was mainly attributable to higher realised
prices and sales volumes for diamonds and Integris Metals (US) products. These
factors were partially offset by higher price-linked costs at Integris, the
unfavourable impact of stronger Canadian$/US$ and rand/US$ average exchange
rates on operating costs, and higher diamond royalties arising from increased
profits. Additionally the half year ended 31 December 2003 included profits
realised on the sale of a non-core royalty interest (US$37 million).
The second half of the 30 June 2005 financial year will be negatively impacted
by the processing of lower grade, lower value material at Ekati (Canada) and the
cessation of earnings from Integris Metals following its sale in January 2005.
Energy Coal
EBIT was US$308 million, an increase of US$223 million or 262% compared with the
corresponding period. The increase was mainly due to higher export prices
resulting from continued strong demand in both the Atlantic and Pacific markets,
increased export sales volumes from Hunter Valley Coal (Australia) following the
successful ramp-up of the Mt Arthur North project, and cost efficiencies gained
at Hunter Valley Coal from increased volumes. This was partially offset by the
unfavourable impact on net operating costs of a stronger rand/US$ average
exchange rate, higher unit costs at Ingwe (South Africa) reflecting higher
operating costs, and South African inflationary pressures.
Stainless Steel Materials
EBIT was US$340 million, an increase of US$147 million or 76% compared with the
corresponding period. The increase was mainly driven by higher realised prices
for nickel, ferrochrome and cobalt. Nickel prices averaged US$6.38/lb in the
current period, up 35% from US$4.72/lb in the corresponding period. This was
partially offset by the impact of stronger currencies on operating costs and
translation of net monetary assets and liabilities, higher cost of production
inputs for chrome operations in South Africa and increased shipping costs.
Group and Unallocated Items
Corporate operating costs were US$135 million compared to US$110 million in the
corresponding period. This was primarily due to an increase of US$27 million
associated with costs of employee share awards in the current period.
Other items in the corresponding period included gains on legacy A$/US$ currency
hedging of US$30 million and benefits from one-off items.
INTERIM FINANCIAL REPORT
CONTENTS
INDEPENDENT REVIEW REPORT OF THE AUDITOR
TO BHP BILLITON PLC 13
CONSOLIDATED PROFIT AND LOSS ACCOUNT 14
CONSOLIDATED STATEMENT OF TOTAL
RECOGNISED GAINS AND LOSSES 15
CONSOLIDATED BALANCE SHEET 16
CONSOLIDATED STATEMENT OF CASH FLOWS 17
NOTES TO INTERIM FINANCIAL INFORMATION 19
The interim financial information set out on pages 14 to 27 has been prepared on
the same basis and using the same accounting policies as were applied in drawing
up the financial information contained in the accounts of BHP Billiton Plc for
the year ended 30 June 2004. The interim financial information should be read in
conjunction with the accounts of BHP Billiton Plc for the year ended 30 June
2004 and does not include all information normally contained within the notes to
annual accounts. Where applicable, comparatives have been adjusted to disclose
them on the same basis as current period figures.
The financial information for the half years ended 31 December 2004 and 31
December 2003 has been subject to review by the auditor but is unaudited. In the
opinion of the Directors, the financial information for these periods presents
fairly the financial position, results of operations and cash flows for the
periods in conformity with UK generally accepted accounting principles (GAAP).
The financial information for the year ended 30 June 2004 has been derived from
the audited financial statements of BHP Billiton Plc for that period as filed
with the UK Registrar of Companies and does not constitute the statutory
accounts of BHP Billiton Plc for that period. The auditors` report on the
statutory accounts for the year ended 30 June 2004 was unqualified and did not
contain statements under Section 237 (2) (regarding adequacy of accounting
records and returns) or under Section 237 (3) (provision of necessary
information and explanations) of the United Kingdom Companies Act 1985.
Impact of International Financial Reporting Standards
For reporting periods beginning on or after 1 January 2005, the Group must
comply with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. The Group`s DLC structure results in
two parent entities with their own statutory reporting obligations, one in
Australia and the other in the UK. While Australia and the UK are currently
moving to an IFRS-based financial reporting regime in the same timeframe, this
structure creates unique IFRS implementation issues, for example:
(i) the Australian Accounting Standards Board has approved IFRS-based standards
which mandate particular policies that are only optional in the UK; and
(ii) there is a risk that further changes in IFRS prior to 30 June 2006 attract
inconsistent early adoption rules between the two jurisdictions.
Accordingly, significant uncertainty remains as to the likely impact of IFRS on
the Group`s financial statements.
Management of IFRS implementation
The Group has established a formal project, monitored by a steering committee,
to manage the transition to IFRS reporting. Regular updates are also provided
to the Board Risk Management and Audit Committee. The implementation project
consists of three phases:
(i) Scoping and impact analysis phase - Project scoping and impact analysis was
substantially complete by 30 June 2004 and produced a high-level view of
potential differences to existing accounting and reporting policies and
consequential changes to information systems and business processes.
Management of IFRS implementation continued
(ii) Evaluation and design phase - This phase involves specification of changes
required to existing accounting policies, information systems and business
processes, together with an analysis of policy alternatives allowed under IFRS
and development of draft IFRS financial statement content. The evaluation and
design phase was well advanced at 31 December 2004 and the Group will continue
to evaluate the impact of developments in IFRS through to implementation.
(iii) Implementation and review phase - The implementation and review phase is
in progress and includes substantial training programmes across the Group`s
finance staff, execution of changes to information systems and business
processes and completing formal authorisation processes to approve recommended
accounting policy changes. It will culminate in the collection of financial
information necessary to compile IFRS-compliant financial statements, embedding
of IFRS in business processes, elimination of any unnecessary data collection
processes and Board approval of IFRS financial statements. Implementation also
involves delivery of further training to staff as revised systems begin to take
effect. This phase commenced at the beginning of the 2004 calendar year and is
not expected to be complete until 30 June 2005.
Key differences in accounting policies
The interim financial information has been prepared in accordance with UK
accounting standards and other UK financial reporting requirements (UK GAAP).
The differences between UK GAAP and IFRS identified to date as potentially
having a significant effect on the Group`s financial performance and financial
position are summarised below. The summary should not be taken as an exhaustive
list of all the differences (significant or not) between UK GAAP and IFRS.
The Group has not quantified the effects of the differences described below.
The regulatory bodies that promulgate UK GAAP and IFRS have significant ongoing
projects that could affect the ultimate differences between UK GAAP and IFRS and
their impact on the Group`s financial statements in future years. The future
impact of IFRS will also depend on the particular circumstances prevailing in
those years.
The key potential implications of the conversion to IFRS on the Group identified
to date are as follows:
- all derivative financial instruments must be recognised in the balance sheet
and measured at fair value. Application of hedge accounting will only be
available where specific designation and effectiveness criteria are satisfied.
These changes may impact the manner in which the Group executes risk mitigation
strategies through derivatives and their consequent accounting. Where hedge
accounting cannot be achieved for ongoing risk mitigation activity, net profit
will be directly affected by changes in market values of derivative financial
instruments.
- income tax will be calculated using the `balance sheet liability` approach,
which recognises deferred tax assets and liabilities by reference to differences
between the accounting and tax values of balance sheet items, rather than
accounting and tax values of items recognised in profit and loss. This approach
has the potential to give rise to a wider range of deferred tax assets and
liabilities and an increase in the volatility of deferred tax balances brought
about by foreign exchange rate movements. In general, a weakening of other
currencies relative to the Group`s US dollar functional currency will reduce the
value of future tax deductions attached to existing assets and liabilities that
are denominated for tax purposes in those other currencies. Such movements
will give rise to foreign exchange losses recognised in income tax expense.
- the cost of employee compensation provided in the form of equity-based
compensation (including shares and options) will be measured based on the fair
value of those instruments, rather than their intrinsic value, and accrued over
the period of employee service. This is likely to change the total amount of
compensation cost and the pattern of cost recognition. Relative to the Group`s
existing accounting policy, the cost of employee compensation provided in the
form of shares and options will be lower and higher respectively, and the cost
will be spread over a longer recognition period.
- defined benefit pension plan and medical benefit plan arrangements will result
in the recognition of net assets or liabilities directly based on the underlying
obligations and assets of those plans. The recognised net asset or liability
will be immediately subject to changes in the market value of plan assets and
changes in the accumulated benefits of employees that may be more volatile than
changes in assets and liabilities currently recognised under Statement of
Standard Accounting Practice (SSAP) 24. Alternative methods of recognising this
volatility will be available, including direct recognition in profit and loss,
progressive recognition using a `corridor` approach, or recognition directly in
equity. The Group intends to adopt the last of these options, which will result
in most sources of volatility being recognised directly in equity rather than
through profit and loss.
INDEPENDENT REVIEW REPORT OF THE AUDITOR TO BHP BILLITON PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 31 December 2004 set out on pages 14 to 27 and we have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the United Kingdom Financial Services Authority. Our review has been
undertaken so that we might state to the Company those matters we are required
to state to it in this report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Company for our review work, for this report, or for the conclusions we have
reached.
Directors` responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the United Kingdom Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts except
where they are to be changed in the next annual accounts, in which case any
changes, and the reasons for them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin
1999/4: `Review of Interim Financial Information` issued by the Auditing
Practices Board for use in the United Kingdom. A review consists principally of
making enquiries of management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed and excludes audit procedures
such as tests of controls and verification of assets, liabilities and
transactions. A review is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit opinion
on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2004.
KPMG Audit Plc
Chartered Accountants
London, 16 February 2005
Consolidated Profit and Loss Account
for the half year ended 31 December 2004
Half year ended
31 December 2004
Excluding Exceptional
exceptional items
items (Note 1) Total
Notes US$M US$M US$M
Turnover (including share of joint
ventures)
Group production 11 454 - 11 454
Third party products 2 4 067 - 4 067
2,3 15 521 - 15 521
less Share of joint ventures` (1 305) - (1 305)
turnover included above
Group turnover 14 216 - 14 216
Net operating costs (10 375) - (10 375)
Group operating profit 3 841 - 3 841
Share of operating profit of joint 388 - 388
ventures
Operating profit (including share 4 229 - 4 229
of profit of joint ventures)
Comprising:
Group production 4 198 - 4 198
Third party products 2 31 - 31
4 229 - 4 229
Income from other fixed asset 11 - 11
investments
Profit on sale of fixed assets 18 56 74
Profit on sale of operations - - -
Loss on termination of operations - - -
Profit/(loss) before net interest 4 258 56 4 314
and similar items payable and
taxation
Net interest and similar items
payable
Group 4 (219) - (219)
Joint ventures 4 (40) - (40)
Profit/(loss) before taxation 2,3 3 999 56 4 055
Taxation (1 131) - (1 131)
Profit/(loss) after taxation 2 868 56 2 924
Equity minority interests (111) - (111)
Profit/(loss) for the financial 2 757 56 2 813
period (attributable profit)
Dividends to shareholders (817) - (817)
Retained profit/(loss) for the 1 940 56 1 996
financial period
Earnings per ordinary share 6 44.5 0.9 45.4
(basic) (US cents)
Earnings per ordinary share 6 44.3 0.9 45.2
(diluted) (US cents)
Dividend per ordinary share (US 13.5
cents)
The accompanying notes form part of these interim financial statements.
Consolidated Profit and Loss Account (continued)
for the half year ended 31 December 2004
Half year ended
31 December 2003
Excluding Exceptional
exceptional items
items (Note 1) Total
Notes US$M US$M US$M
Turnover (including share of joint
ventures)
Group production 8 155 - 8 155
Third party products 2 2 808 - 2 808
2,3 10 963 - 10 963
less Share of joint ventures` (1 016) - (1 016)
turnover included above
Group turnover 9 947 - 9 947
Net operating costs (8 014) 66 (7 948)
Group operating profit 1 933 66 1 999
Share of operating profit of joint 170 - 170
ventures
Operating profit (including share 2 103 66 2 169
of profit of joint ventures)
Comprising:
Group production 2 097 66 2 163
Third party products 2 6 - 6
2 103 66 2 169
Income from other fixed asset 18 - 18
investments
Profit on sale of fixed assets 62 - 62
Profit on sale of operations - - -
Loss on termination of operations - - -
Profit/(loss) before net interest 2 183 66 2 249
and similar items payable and
taxation
Net interest and similar items
payable
Group 4 (242) - (242)
Joint ventures 4 (52) - (52)
Profit/(loss) before taxation 2,3 1 889 66 1 955
Taxation (658) 60 (598)
Profit/(loss) after taxation 1 231 126 1 357
Equity minority interests (18) - (18)
Profit/(loss) for the financial 1 213 126 1 339
period (attributable profit)
Dividends to shareholders (497) - (497)
Retained profit/(loss) for the 716 126 842
financial period
Earnings per ordinary share 6 19.5 2.0 21.5
(basic) (US cents)
Earnings per ordinary share 6 19.5 2.0 21.5
(diluted) (US cents)
Dividend per ordinary share (US 8.0
cents)
The accompanying notes form part of these interim financial statements.
Consolidated Profit and Loss Account (continued)
for the half year ended 31 December 2004
Year ended
30 June 2004
Excluding Exceptional
exceptional items
items (Note 1) Total
Notes US$M US$M US$M
Turnover (including share of joint
ventures)
Group production 18 283 - 18 283
Third party products 2 6 660 - 6 660
2,3 24 943 - 24 943
less Share of joint ventures` (2 056) - (2 056)
turnover included above
Group turnover 22 887 - 22 887
Net operating costs (17 960) 66 (17 894)
Group operating profit 4 927 66 4 993
Share of operating profit of joint 425 - 425
ventures
Operating profit (including share 5 352 66 5 418
of profit of joint ventures)
Comprising:
Group production 5 319 66 5 385
Third party products 2 33 - 33
5 352 66 5 418
Income from other fixed asset 35 - 35
investments
Profit on sale of fixed assets 95 - 95
Profit on sale of operations 6 - 6
Loss on termination of operations - (534) (534)
Profit/(loss) before net interest 5 488 (468) 5 020
and similar items payable and
taxation
Net interest and similar items
payable
Group 4 (407) - (407)
Joint ventures 4 (95) - (95)
Profit/(loss) before taxation 2,3 4 986 (468) 4 518
Taxation (1 379) 337 (1 042)
Profit/(loss) after taxation 3 607 (131) 3 476
Equity minority interests (97) - (97)
Profit/(loss) for the financial 3 510 (131) 3 379
period (attributable profit)
Dividends to shareholders (1 617) - (1 617)
Retained profit/(loss) for the
