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BHP Billiton Plc - Supplementary Information - Preliminary Final Report for 12
months to 30/6/2005
BHP Billiton Plc
Share Code: BIL
Isin: GB0000566504
9 September 2005
BHP BILLITON LIMITED ABN 49 004 028 077
APPENDIX 4E TO THE LISTING RULES OF THE AUSTRALIAN STOCK EXCHANGE
Supplementary Information - Preliminary Final Report for 12 months to 30/6/2005
The following supplementary information is provided in accordance with the
Listing Rules of the Australian Stock Exchange. It includes the combined results
of the BHP Billiton Group, comprising BHP Billiton Limited and BHP Billiton Plc
and their respective subsidiaries, for the full year ended 30 June 2005 compared
with the full year ended 30 June 2004, and is prepared in accordance with
Australian Generally Accepted Accounting Principles. The information supplements
the results of the BHP Billiton Group for the full year ended 30 June 2005
announced to the market on 24 August 2005.
Ross Mallett
Deputy Company Secretary
RESULTS FOR THE FINANCIAL YEAR 30 June 2005
Discussion and Analysis
Basis of presentation of financial information
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.
Accounting and reporting on the DLC merger
In accordance with the Australian Securities and Investments 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 information presents the
financial results of the BHP Billiton Group as follows:
- Results for the years ended 30 June 2005 and 30 June 2004 are of 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.
The accounting policies have been consistently applied by all entities in the
BHP Billiton Group and are consistent with those applied in the prior year.
Results for the year ended 30 June 2005
OverviewThe consistent execution of the BHP Billiton business strategy has
positioned the Group to take advantage of the current strong market conditions
and deliver another record result. The benefits of commodity diversification,
focussing on large, low cost, long life assets, capturing and sharing
efficiencies across our businesses globally and the identification of, and
continued investment in, value adding growth opportunities throughout the cycle,
are not only reflected in the current result but enable us to capture our share
of demand growth from the rapidly developing regions of the world. Net profit
attributable to members of the BHP Billiton Group of US$6.0 billion is an
increase of 76.6 per cent from the previous year with net operating cash flows
of US$8.9 billion up 72.5 per cent over last year.In March 2005 the Group
announced a cash offer for WMC Resources Ltd (WMC), an Australian based resource
company. As of 30 June 2005 BHP Billiton owned approximately 93 per cent of WMC,
with 100 per cent ownership achieved on 2 August. BHP Billiton`s results for
the 2005 financial year include the contribution from WMC for the month of June
2005.This transaction provides the ability to build on the Group`s existing
nickel and copper businesses, as well as introducing uranium to our suite of
energy products. In addition to providing immediate production to service global
customers, the acquisition provides significant growth opportunities. The
transaction is fully aligned with our strategy of developing, operating and
maximising the performance of large, long life, low cost assets and provided a
unique opportunity to acquire operational tier 1 assets in a stable, developed
economy well positioned to service the growing demand for commodities in
Asia.Operating revenue Operating revenue was US$29.6 billion, an increase of
29.5 per cent from US$22.9 billion in the corresponding period. The increase was
primarily due to higher prices for all commodities with base metals, carbon
steel materials, petroleum and energy coal prices contributing significantly.
Increased volumes also benefited the Group result.
Profit before borrowing costs and taxProfit before borrowing costs, tax,
depreciation and amortisation increased by 65.0 per cent to US$11.0 billion from
US$6.7 billion in the corresponding period. Profit before borrowing costs and
tax was US$9.0 billion compared with US$4.9 billion for the corresponding
period, an increase of 84.8 per cent. Excluding significant items (refer below),
profit before borrowing costs and tax was US$9.1 billion, an increase of 71.1
per cent from US$5.3 billion in the corresponding period. The following
represent the major factors affecting profit before borrowing costs and tax
(excluding significant items and outside equity interests) for the year ended 30
June 2005 compared with the corresponding year:
- Higher sales volumes (measured at last year`s average margins) contributed to
an increase in profit. Increased sales volumes of iron ore, copper, natural gas,
aluminium, silver and lead, were partially offset by unfavourable impacts
resulting from lower oil volumes, due to natural field decline and planned
shutdowns for maintenance activities, and lower diamond sales.
- Stronger commodity prices across the suite of products increased profit
significantly, with higher prices achieved for iron ore, copper, metallurgical
coal, petroleum products, energy coal, aluminium, manganese alloy, nickel and
diamonds being the predominant contributors.
- New operations increased profit, primarily due to first production from ROD
(Algeria) which commenced commercial production in October 2004, the first full
year of production from Ohanet (Algeria) which commenced commercial production
in October 2003, and the start of oil production from Mad Dog (US) in January
2005. The acquisition of WMC resulted in an unfavourable impact on profit for
the month of June.
- Relative to the prior year, exchange rate movements had an unfavourable impact
on profit. The continued strength of the Australian dollar and rand against the
US dollar had an overall unfavourable impact on operating costs and translation
of net monetary liabilities. In addition, the prior period included US$39
million of gains on legacy Australian dollar to US dollar currency hedging which
expired during that year.
- Higher price-linked costs decreased profit, primarily due to higher amounts of
tax paid on petroleum products in Australia, higher royalties and increased LME-
linked costs.
- Costs were higher primarily due to higher fuel, labour, raw material and other
operating costs, an increase in stripping and maintenance related activities and
development expenditure. The increase in costs was caused, in part, by the
increased level of activity currently experienced in the resources industry.
Although the impact is of varying degrees globally, these pressures are
particularly acute in Australia. A portion of the increase in costs was
deliberately incurred by the Group to maximise production to capture current
prices. Increased costs were partially offset by continued operating cost
savings from improvement initiatives and efficiency gains.
- Inflationary pressures, mainly in Australia and South Africa, had an
unfavourable impact on profit.
- Ceased and sold operations had an unfavourable impact on profit mainly due to
ceased production at Boodarie Iron in Western Australia after it was placed on
care and maintenance during the year. The unfavourable impact also included the
loss of earnings from the Laminaria and Corallina oil fields following their
sale in January 2005.
- Exploration expense was US$20 million higher than the corresponding period.
- Other items that contributed to an increase in profit included the benefits of
freight risk management activities and profit on the close out of cash settled
derivative contracts for WMC shares.
Significant itemsSignificant items reduced net profit by US$30 million (after a
tax benefit of US$104 million) and net profit attributable to BHP Billiton by
US$80 million, and incorporated the items outlined below.
Net profit on disposal of various assets and interests before outside equity
interests totalled US$316 million and included:
US$Million Proceeds Profit Tax
before
tax
Laminaria & Corallina 130 134 (10)
Chrome operations 433 142 (6)
Interest in North West 59 56 -
Shelf
Total 622 332 (16)
- The Group disposed of its interest in the Laminaria and Corallina oil fields
to Paladin Resources plc in January 2005;
- BHP Billiton disposed of its economic interest in the majority of its South
African Chrome operations to the Kermas Group in June 2005. In addition, the
Group sold its interest in the Palmiet chrome business to Mogale Alloys in May
2005. After the outside equity interest in the share of net profit of US$50
million, the Group`s share of net profit arising from the sale of the chrome
businesses was US$86 million; and
- In December 2004 the sale of an equity participation in the North West Shelf
(NWS) Project`s gas reserves in Western Australia to China National Offshore Oil
Corporation (CNOOC) was completed.
Following a decision to permanently close the Boodarie Iron (Australia)
operations a charge of US$266 million (US$80 million tax benefit) relating to
termination of the operation has been recognised. The charge primarily relates
to settlement of existing contractual arrangements, plant decommissioning, site
rehabilitation, redundancy and other costs associated with the closure.
As part of the Group`s regular review of decommissioning and site restoration
plans, the Group reassessed plans in respect of certain closed operations. A
total charge of US$121 million (US$104 million after tax) was recorded and
included:
- A charge of US$73 million (US$21 million tax benefit) in relation to revision
of the Group`s assessed rehabilitation obligation at closed mines at Ingwe
(South Africa), predominantly resulting from revised water management plans;
and,
- A charge of US$48 million (US$4 million tax expense) in relation to other
closed mining operations.
The Group is required to recognise provisions and record a charge of US$79
million (US$56 million after tax) against earnings in respect of restructuring
certain operations. This included US$50 million (US$15 million tax benefit) in
respect of restructuring associated with the acquisition of WMC in June 2005
primarily relating to redundancy and termination costs, office closures and
termination of previous contractual arrangements, and US$29 million (US$8
million tax benefit) for other restructurings, primarily for redundancies at
Ingwe (South Africa).The corresponding period included significant items as
follows:
- A charge of US$534 million (US$512 million after tax) in relation to certain
closed operations;
- A gain of US$66 million (US$48 million after tax) in relation to a settlement
with Dalmine SpA with respect to the failure of an underwater pipeline;
- A tax benefit of US$267 million resulting from the restatement of deferred tax
balances following the election to consolidate Australian subsidiaries under the
Australian tax consolidation regime; and,
- A tax benefit of US$238 million arising from prior period taxation deductions
and foreign tax credits available in the US and Canada.
Borrowing costs
Total borrowing costs including capitalised interest, excluding discounting on
provisions and other liabilities and excluding exchange differences on Group
borrowings, increased from US$367 million to US$385 million during the period.
Despite lower average debt levels, this was principally driven by higher US
dollar interest rates compared to the corresponding period. Exchange losses on
Group borrowings were US$24 million compared with losses of US$109 million in
the corresponding period.
TaxationThe tax charge on earnings was US$2 240 million, which included the tax
benefits of significant items totalling US$104 million as noted above. Excluding
the benefit of these significant items, the tax charge would be US$2 344
million, representing an effective tax rate of 27.2 per cent. The underlying
effective tax rate was 28.6 per cent excluding the impacts of significant items,
non tax-effected foreign currency adjustments, translation of tax balances and
other functional currency translation adjustments.
Financial position and cash flowsFinancial PositionNet assets and equity for the
BHP Billiton Group were US$18 364 million at 30 June 2005, an increase of US$2
939 million from the 30 June 2004 position. The large increase was attributable
to retained profit for the financial year.Net borrowings for the BHP Billiton
Group increased by US$4 743 million or 95.5 per cent to US$9 708 million at 30
June 2005. Consequently, the gearing ratio, which is the ratio of net borrowings
to net borrowings plus net assets, was 34.6 per cent at 30 June 2005, compared
with 24.4 per cent at 30 June 2004. The significant increase in net borrowings
is due to debt financing for the acquisition of WMC.
Net tangible assets per ordinary fully paid share were US$2.89 as at 30 June
2005 compared with US$2.35 as at 30 June 2004.
Portfolio managementDuring the year, the ongoing review of the asset portfolio
continued to ensure alignment with our strategy of owning and operating large,
low cost, long life assets. As a result, the Group acquired WMC, disposed of its
economic interests in the majority of its South African Chrome operations in
June 2005 and sold our interests in the Laminaria and Corallina Oil Fields
(located in the Timor Sea) in January 2005. Our equity interest in Integris
Metals (US) was sold for proceeds of US$202 million in January 2005. We have
also sold 50 per cent of our shareholding in Acerinox S.A. for proceeds of US$56
million, and a 5.8 per cent equity participation in the gas reserves associated
with the North West Shelf Project to CNOOC. Since July 2001, total proceeds on
the sale or divestment of assets totalled US$4.6 billion, including US$1.8
billion for the capital reduction and loan repayments resulting from the
demerger of the BHP Steel business.Capital ManagementIn October 2004, Moody`s
Investor Services (Moody`s) upgraded BHP Billiton`s credit rating from A2 to A1,
reflecting the Group`s strengthened financial risk profile.In March 2005,
following the announcement of the takeover offer for WMC, Standard and Poor`s
(S&P) and Moody`s reviewed the Group`s rating, with S&P maintaining the Group`s
A+ stable rating and Moody`s placing the outlook on developing. In June 2005
Moody`s restored the Group`s outlook to stable, stating that the rating
affirmation was prompted by the successful acquisition of WMC at the price and
on the terms anticipated.During the year, the Group completed both stages of its
US$2 billion capital management programme. Stage one was completed in November
2004 via a US$1.78 billion off-market share buy-back of 180.7 million BHP
Billiton Limited shares or 2.9 per cent of the issued capital of the BHP
Billiton Group. The shares were purchased at A$12.57 per share, representing a
12 per cent discount to the volume weighted average price of BHP Billiton shares
over the five days up to and including the buy-back closing date. The residual
US$220 million was used to rebase the interim dividend declared in February
2005.Cash flowsNet operating cash flows increased by 72.5 per cent to US$8.9
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$11.0 billion for the period (excluding cash acquired with WMC of
US$396 million). Expenditure on growth projects and investments amounted to
US$10 467 million, including US$6 594 million for the acquisition of WMC, US$845
million on petroleum projects and US$1 869 million on minerals projects.
Sustaining and maintenance capital expenditure was US$1 159 million. Total
expenditure on exploration was US$533 million, including US$380 million on
petroleum activities and US$153 million on minerals activities. In addition, the
current period includes US$1.78 billion for the repurchase of shares as part of
the US$2 billion capital management programme. Currency The Group has adopted
the US dollar as its reporting currency and, subject to some specific
exceptions, its functional currency. Currency fluctuations affect the Statement
of Financial Performance in two principal ways.Sales are predominantly based on
US dollar pricing (the principal exceptions being Petroleum`s gas sales to
Australian and UK domestic customers and Energy Coal`s sales to South African
domestic customers). However, a proportion of operating costs (particularly
labour) arises in local currency of the operations, most significantly the
Australian dollar and South African rand, but also the Brazilian real, the
Chilean peso and Colombian peso. Accordingly, changes in the exchange rates
between these currencies and the US dollar can have a significant impact on the
Group`s reported results.Several subsidiaries hold certain monetary assets and
liabilities denominated in currencies other than their functional currency (US
dollars), in particular non-US dollar denominated tax liabilities, provisions
and, to a lesser extent, borrowings. Group borrowings are primarily in US
dollars, with South African net rand borrowings now extinguished. Monetary
assets and liabilities are converted into US dollars at the closing rate. The
resultant differences are accounted for in the Statement of Financial
Performance.DividendA final dividend for the year ended 30 June 2005 of 14.5 US
cents per share will be paid to shareholders on Wednesday, 28 September 2005. An
interim dividend of 13.5 US cents per share was paid to shareholders on 23 March
2005. That dividend included US$220 million (3.6 US cents per share) to complete
the US$2 billion capital management programme announced in August 2004. BHP
Billiton intends to continue with its progressive dividend policy.The dividend
paid by BHP Billiton Limited will be fully franked for Australian taxation
purposes. Dividends for the BHP Billiton Group are determined and declared in
US dollars. However, BHP Billiton Limited dividends are mainly paid in
Australian dollars and BHP Billiton Plc dividends are mainly paid in pounds
sterling to shareholders on the UK section of the register and rands to
shareholders on the South African section of the register. Audit
The final results are based upon financial statements which have been audited.
Statement of Financial Performance
for the year ended 30 June 2005
2005 2004
US$M(a) US$M(a)
Revenue from ordinary activities
Operating revenue 29 649 22 887
Non-operating revenue 1 458 626
31 107 23 513
deduct
Expenses from ordinary activities, excluding depreciation, 20 697 17 084
amortisation and borrowing costs
10 410 6 429
add
Share of net profit of joint venture and associated entities 564 223
accounted for using the equity method
10 974 6 652
deduct
Depreciation and amortisation 1 994 1 793
Borrowing costs 499 490
Profit from ordinary activities before income tax 8 481 4 369
deduct
Income tax expense attributable to ordinary activities 2 240 870
Net profit 6 241 3 499
deduct
Outside equity interests in net profit of controlled 232 96
entities
Net profit attributable to members of the BHP Billiton Group 6 009 3 403
Non-owner transaction changes in equity
Net exchange fluctuations on translation of foreign currency
net assets and designated
foreign currency interest bearing liabilities net of tax 7 48
Total direct adjustments to equity attributable to members 7 48
of the BHP Billiton Group
Total changes in equity other than those resulting from 6 016 3 451
transactions with owners
Basic earnings per share (US cents) 98.1 54.7
Diluted earnings per share (US cents) 97.6 54.5
(a) Financial information for 2005 and 2004 represents the financial
performance of the BHP Billiton Group (Refer `Basis of presentation of financial
information` and `Accounting and reporting on the DLC merger`).
Statement of Financial Position
as at 30 June 2005
2005 2004
US$M(a) US$M(a)
Current assets
Cash assets 1 418 1 818
Receivables 3 490 2 778
Other financial assets 212 167
Inventories 2 542 1 715
Other assets 160 176
Total current assets 7 822 6 654
Non-current assets
Receivables 619 748
Investments accounted for using the equity method 1 525 1 369
Other financial assets 97 123
Inventories 103 45
Property, plant and equipment 30 347 20 945
Intangible assets 513 422
Deferred tax assets 660 502
Other assets 424 371
Total non-current assets 34 288 24 525
Total assets 42 110 31 179
Current liabilities
Payables 4 091 2 590
Interest bearing liabilities 1 500 1 330
Tax liabilities 842 297
Other provisions and liabilities 1 226 810
Total current liabilities 7 659 5 027
Non-current liabilities
Payables 162 177
Interest bearing liabilities 9 626 5 453
Deferred tax liabilities 1 318 1 053
Other provisions and liabilities 4 981 4 044
Total non-current liabilities 16 087 10 727
Total liabilities 23 746 15 754
Net assets 18 364 15 425
Equity
Contributed equity - BHP Billiton Limited 1 611 1 851
Called up share capital - BHP Billiton Plc 1 752 1 752
Reserves 638 547
Retained profits 14 022 10 928
Total BHP Billiton interest 18 023 15 078
Outside equity interests 341 347
Total equity 18 364 15 425
(a) Financial information for 2005 and 2004 represents the financial position
of the BHP Billiton Group (Refer `Basis of presentation of financial
information` and `Accounting and reporting on the DLC merger`).
Statement of Cash Flows
for the year ended 30 June 2005
2005 2004
US$M(a) US$M(a)
Cash flows related to operating activities
Receipts from customers 30 711 23 372
Payments in the course of operations (20 083) (16 806)
Dividends received 292 238
Interest received 79 78
Borrowing costs (includes capitalised interest) (378) (370)
Operating cash flows before income tax 10 621 6 512
Income taxes paid (1 695) (1 337)
Net operating cash flows (b) 8 926 5 175
Cash flows related to investing activities
Purchases of property, plant and equipment (3 831) (2 589)
Exploration expenditure (includes capitalised (533) (454)
exploration)
Purchases of investments and funding of joint (42) (35)
ventures
Purchases of, or increased investment in, (6 198) -
controlled entities and joint venture interests,
net of their cash
Investing cash outflows (10 604) (3 078)
Proceeds from sale of property, plant and equipment 155 157
Proceeds from sale or redemption of investments 227 89
Proceeds from demerger, sale or partial sale of
controlled entities, operations and joint venture 675 179
entities`
interests net of their cash
Net investing cash flows (9 547) (2 653)
Cash flows related to financing activities
Proceeds from ordinary share issues 66 76
Proceeds from interest bearing liabilities 5 754 510
Repayment of interest bearing liabilities (1 975) (1 336)
Purchase of shares by ESOP trusts (47) (25)
Share repurchase scheme - BHP Billiton Limited (1 792) -
Dividends paid (1 404) (1 501)
Dividends paid to outside equity interests (238) (75)
Repayment of finance leases (22) (9)
Net financing cash inflows/outflows 342 (2 360)
Net (decrease)/increase in cash and cash (279) 162
equivalents
Cash and cash equivalents at beginning of financial 1 685 1 531
year
Effect of foreign currency exchange rate changes on (3) (8)
cash and cash equivalents
Cash and cash equivalents at end of financial year 1 403 1 685
(c)
(a) Financial information for 2005 and 2004 represents the cash flows of the
BHP Billiton Group (Refer `Basis of presentation of financial information` and
`Accounting and reporting on the DLC merger`).
Statement of Cash Flows continued
(b) Reconciliation of net cash provided by operating activities to net profit
2005 2004
US$M US$M
Net profit 6 241 3 499
Depreciation and amortisation 1 994 1 793
Share of net profit of joint venture less dividends (309) (20)
Capitalised borrowing costs (85) (97)
Exploration, evaluation and development expense 353 284
(excluding diminution)
Net gain on sale of non-current assets (112) (101)
Discounting on provisions and other liabilities 175 111
Inventory fair value adjustment 54 -
Sale of equity interest in North West Shelf project (56) -
Sale of Laminaria and Corallina (134) -
Disposal of Chrome operations (142) -
Restructuring provisions 79 -
Provision for termination of operations 246 -
Closure plans 121 534
Dalmine settlement - (66)
Diminution of property, plant and equipment, investments 16 116
and intangibles
Employee share awards 116 96
Exchange differences on Group debt 15 104
Change in assets and liabilities net of effects from
acquisitions and disposals of controlled entities
and exchange fluctuations
Increase in inventories (393) (356)
Decrease/(increase) in deferred charges 11 (80)
Increase in trade receivables (521) (560)
(Increase)/decrease in sundry receivables (146) 35
Increase/(decrease) in income taxes payable 545 (19)
Decrease in deferred taxes (9) (439)
Increase in trade creditors 585 259
Increase/(decrease) in sundry creditors 116 (3)
Increase/(decrease) in interest payable 5 (2)
Increase in other provisions and liabilities 149 84
Other movements 12 3
Net cash provided by operating activities 8 926 5 175
For the purposes of the Statement of Cash Flows, cash is defined as cash and
cash equivalents. Cash equivalents include highly liquid investments which are
readily convertible to cash, bank overdrafts and interest bearing liabilities at
call.
2005 2004
US$M US$M
Reconciliation of cash
Cash and cash equivalents comprise:
Cash assets
Cash 916 674
Short-term deposits 502 1 144
Total cash assets 1 418 1 818
Bank overdrafts (15) (133)
Total cash and cash equivalents 1 403 1 685
SIGNIFICANT ITEMS
Individually significant items (before outside equity interests) included within
the BHP Billiton Group`s net profit are detailed below.
Gross Tax Net
Year ended 30 June 2005 US$M US$M US$M
Significant items by category
Sale of equity interest in North 56 - 56
West Shelf Project
Sale of Laminaria and Corallina 134 (10) 124
Disposal of Chrome operations 142 (6) 136
Restructuring provisions (79) 23 (56)
Provision for termination of (266) 80 (186)
operations
Closure plans (121) 17 (104)
Total by category (134) 104 (30)
Significant items by Customer Sector
Group
Petroleum 190 (10) 180
Base Metals (30) (4) (34)
Carbon Steel Materials (285) 80 (205)
Energy Coal (93) 27 (66)
Diamonds and Specialty Products (6) 1 (5)
Stainless Steel Materials 137 (5) 132
Group and unallocated items (47) 15 (32)
Total by Customer Sector Group (134) 104 (30)
Sale of equity interest in North West Shelf Project
During the year ended 30 June 2005, BHP Billiton sold an equity participation in
the North West Shelf (NWS) Project to China National Offshore Oil Corporation
(CNOOC). CNOOC purchased an interest in a new joint venture that is being
established within the NWS Project to supply LNG to the Guangdong LNG Project in
China. CNOOC will acquire title to approximately 5.8 per cent of current NWS
Project gas reserves and rights to process its gas and associated LPG and
condensate through NWS venture offshore and onshore infrastructure. CNOOC paid
each joint venture partner US$59 million resulting in a profit on sale of US$56
million (no tax effect).
Sale of Laminaria and Corallina
In January 2005, the Group disposed of its interest in the Laminaria and
Corallina oil fields to Paladin Resources plc. Proceeds on the sale were US$130
million resulting in a profit before tax of US$134 million (US$10 million tax
expense).
Disposal of Chrome operations
Effective 1 June 2005, BHP Billiton disposed of its economic interest in the
majority of its South African chrome business to the Kermas Group. The total
proceeds on the sale were US$421 million, resulting in a profit of US$127
million (US$1 million tax expense) in accordance with Australian GAAP. In
addition, the Group sold its interest in the Palmiet chrome business to Mogale
Alloys in May 2005 for proceeds of US$12 million, resulting in a profit of US$15
million (US$5 million tax expense).
The BHP Billiton share of profit before tax on disposal of the Chrome operations
is US$90 million (US$4 million tax expense), whilst the minority interest in the
profit after tax of the disposal was US$50 million.
Restructuring provisions
The Group is required to record a charge against earnings in respect of
restructuring certain operations. This totalled US$79 million (US$56 million
after tax) and related to a charge of US$50 million (US$15 million tax benefit)
in respect of restructuring associated with the acquisition of WMC in June 2005
primarily relating to redundancy and termination costs, office closures and
termination of previous contractual arrangements; and a charge of US$29 million
(US$8 million tax benefit) for other restructurings, primarily for redundancies
at Ingwe (South Africa).
Provision for termination
The Group decided to decommission the Boodarie Iron (Australia) operations and a
charge of US$266 million (US$80 million tax benefit) relating to termination of
the operation was recognised. The charge primarily relates to settlement of
existing contractual arrangements, plant decommissioning, site rehabilitation,
redundancy and other closure related costs/charges associated with the closure.
Closure plans
As part of the Group`s regular review of decommissioning and site restoration
plans, the Group reassessed plans in respect of certain closed operations. A
total charge of US$121 million (US$104 million after tax) was recorded and
included a charge of US$73 million (US$21 million tax benefit) for closed mines
at Ingwe (South Africa) in relation to revision of the Group`s assessed
rehabilitation obligation, predominantly resulting from revised water management
plans, and a charge of US$48 million (US$4 million tax expense) in relation to
other closed mining operations.
SIGNIFICANT ITEMS CONTINUED
Gross Tax Net
Year ended 30 June 2004 US$M US$M US$M
Significant items by category
Introduction of tax consolidation - 267 267
regime in Australia
Litigation settlement 66 (18) 48
US and Canadian taxation deductions - 238 238
Closure plans (534) 22 (512)
Total by category (468) 509 41
Significant items by Customer Sector
Group
Petroleum 66 (18) 48
Base Metals (482) 11 (471)
Stainless Steel Materials (10) 3 (7)
Group and unallocated items (42) 513 471
Total by Customer Sector Group (468) 509 41
Introduction of tax consolidation regime in Australia
During the year ended 30 June 2004, BHP Billiton elected to consolidate its
Australian subsidiaries under the Australian tax consolidation regime, as
introduced by the Australian Federal Government. Under the transitional rules,
the Group chose to reset the tax cost base of certain depreciable assets which
will result in additional tax depreciation over the lives of these assets. This
resulted in the restatement of deferred tax balances and a tax benefit of US$267
million being recorded in accordance with Urgent Issues Group Abstract 52.
Litigation settlement
In December 2003, BHP Billiton announced that it was part of a consortium that
had reached a settlement with Dalmine SpA with respect to a claim brought
against Dalmine in April 1998. The claim followed the failure of an underwater
pipeline installed in 1994 in the Liverpool Bay area of the UK continental
shelf. As a result of the settlement, BHP Billiton recorded a gain of US$66
million, before tax expense of US$18 million.
US and Canadian taxation deductions
During the year ended 30 June 2004, the level of certainty regarding potential
benefits arising from prior period taxation deductions and foreign tax credits
available in the US and Canada increased to the extent that some of the
provisions against deferred tax assets established in prior years were no longer
necessary. This was a result of higher income generation, changes in legislation
and effective utilisation of tax credits during the year, along with increasing
confidence regarding the ability to realise benefits in the future. Accordingly,
the Group recorded a tax benefit of US$238 million.
Closure plans
During the year ended 30 June 2004, the Group refined its plans in relation to
certain closed operations. In relation to the Group`s Southwest Copper business
in the US, this resulted in a charge of US$425 million resulting from a re-
estimation of short-term closure costs and the inclusion of residual risks,
longer-term water management and other costs, and an increase in the residual
value of certain assets. Additionally, at other closed sites a charge of US$109
million (before a tax benefit of US$22 million) was recorded, mainly in relation
to the Island Copper mine, the Newcastle Steelworks and the Selbaie copper mine.
Accordingly, the Group has recorded a net after-tax loss of US$512 million.
ACQUIRED OPERATIONS
On 3 June 2005 the BHP Billiton Group obtained control of WMC Resources Ltd
(WMC) with acceptance for 76.25 per cent of the equity shares. On 17 June the
BHP Billiton Group had acquired more than 90 per cent of the equity shares in
WMC, which triggered the compulsory acquisition of all remaining shareholdings.
Payment for 100 per cent ownership was completed on 2 August. WMC was acquired
for a total cash consideration of US$7 229 million made up of a price of A$7.85
per share plus acquisition related costs.
WMC was one of Australia`s leading resource companies. WMC`s major assets are:
- the Olympic Dam copper/uranium/gold mine and related treatment plants located
in South Australia;
- an integrated nickel mining, refining and smelting business with operations in
Western Australia;
- The Queensland Fertilizer Operations (QFO) which consists of an integrated
phosphate mine and ammonium phosphate fertliser production facility; and
- the Corridor Sands mineral sands project in Mozambique.
Olympic Dam produces copper, uranium, gold and silver. It is the fourth largest
copper reserve, the fourth largest gold reserve and the largest uranium reserve
in the world, and is the largest underground mine in Australia. Olympic Dam
consists of an underground mine and a mineral processing plant, smelter and
refinery with associated supporting infrastructure. Copper and uranium sales are
the major revenue stream for Olympic Dam. Gold and silver are also mined and
sold. Uranium oxide concentrate is sold under long-term contracts with major
international power companies.
The WMC nickel operations consist of ore treatment facilities at Kambalda,
mining and milling operations at Mt Keith and Leinster, a nickel smelter in
Kalgoorlie and a refinery in Kwinana. WMC purchases nickel ore from a variety of
mines for processing through the treatment facility at Kambalda. Kambalda
concentrate is transported to the nickel smelter at Kalgoorlie. Mt Keith is a
large open-cut mine where ore is mined and the concentrate transported to
Leinster for drying. Leinster comprises both underground and open-cut mines as
well as treatment and drying facilities. Blended concentrate from Leinster and
Mt Keith is transported to the smelter. The smelter processes the concentrate
received and produces nickel matte, of which the majority is further processed
at the Kwinana refinery to produce high purity nickel briquettes, nickel powder
and other nickel intermediate products. The nickel concentrate, matte and metal
production is exported to Asia, Europe and North America and is principally used
in making stainless steels.
WMC`s fertiliser operations consists of QFO, which is an ammonium phosphate
manufacturing facility with distribution and marketing operations, and a one-
third investment in Hi-Fert, which distributes and markets fertiliser products.
QFO produces and markets di-ammonium phosphate and mono-ammonium phosphate. The
QFO includes a sulphuric acid plant at Mt Isa, a mining operation and fertiliser
plant at Phosphate Hill and storage and port facilities at Townsville. The
finished product is distributed in Australia by Incitec Pivot, Hi-Fert, Summitt
and Impact, and by Cargill internationally under a marketing agreement. Hi-Fert
procures, markets and distributes all major fertlisers into eastern Australia
and is the second largest distributor to that region. Hi-Fert owns patented
coating technology that it uses to provide value-added products including zinc
and sulphur-coated products.
WMC`s Corridor Sands mineral sands project is located in Mozambique and is
expected to culminate in an integrated mining, concentration and smelting
operation to produce titanium dioxide slag. Titanium dioxide feedstocks are used
to produce pigments, titanium metal and other specialist products.
BHP Billiton expects the acquisition of WMC to provide a number of benefits.
These include the following:
- WMC`s nickel business comprises an outstanding set of assets, in terms of
operating capability, country risk, scale and environmental standards, which
complements BHP Billiton`s existing nickel business. The combined business will
have a range of operations, products and technologies that will provide a robust
and flexible platform for further growth.
- BHP Billiton now operates two of the world`s four largest copper deposits. BHP
Billiton`s track record in developing and operating Escondida, the world`s
largest copper mine, will allow the Group to maximise the value of the large,
long-life Olympic Dam resource base.
- BHP Billiton is now a major producer of uranium with the largest resource base
in the world. Uranium is an important energy source in an increasingly energy
intensive world. Not only is this valuable on a stand-alone basis, but it
complements BHP Billiton`s existing energy portfolio of oil, gas and coal.
- BHP Billiton can maximise synergies in the nickel and copper business,
marketing and other corporate functions. BHP Billiton will eliminate duplicate
functions by using the proven systems and processes that were successfully used
following the BHP Billiton merger in 2001.
ACQUIRED OPERATIONS CONTINUED
The following table details the fair value of the net assets acquired:
Book Adjustment Provisional Provisional
value for fair value fair value
US$M accounting adjustments US$M
policies US$M
US$M
Cash assets 396 - - 396
Receivables 444 - (162) 282
Inventories 520 (21) 116 615
Investments accounted for 33 - (8) 25
using the equity method
Property, plant and equipment 4 428 - 2 708 7 136
Other assets 84 - (1) 83
Current liabilities (477) (5) 35 (447)
Non-current liabilities (1 454) (42) 452 (1 044)
Net assets acquired 3 974 (68) 3 140 7 046
Goodwill 183
Total cost of acquisition 7 229
Total cost of acquisition
satisfied by the following
consideration:
Cash paid 6 594
Cash payable 635
7 229
The book values included in the table above are the Australian dollar values of
WMC assets and liabilities acquired converted to US dollars at the acquisition
day rate of 0.7556.
Due to the complexity and timing of this acquisition, the fair values currently
established are provisional and are subject to review during the year ended 30
June 2006.
The material provisional fair value adjustments principally relate to:
- Property, plant and equipment reflecting the fair value of mineral assets,
together with revaluation of property, plant and equipment representing
replacement cost and estimated remaining useful lives;
- Investments have been revalued to reflect current market values;
- An upward revaluation of inventory balances held at Olympic Dam and nickel
operations. This is a result of the fair value principles applying where the
fair value is broadly defined as selling prices less costs to sell, less a
reasonable profit margin for the selling effort of the acquirer. Essentially
this results in a `sales price` being applied to value inventory as opposed to
the cost recorded in the acquirer`s balance sheet. As a result of this
treatment, sales margins have been recognised in advance of the inventory being
sold external to the Group. When the inventory on hand at the date of
acquisition is subsequently sold external to the Group, effectively no margin
will be realised;
- Debtors and creditors have been revalued to reflect the expected timing and
amount of settlements. External fixed rate debt and derivative financial
instruments have been revalued to reflect current market terms. Deferred gains
and losses relating to commodity price and foreign currency hedging arrangements
have been de-recognised;
- Provisions include the recognition of accumulated unfunded pension
liabilities; and
- Deferred tax asset and liability balances have been adjusted to take into
account revised fair values for book purposes and resetting of tax bases as a
result of the acquisition, where applicable. Deferred tax balances relating to
tax losses have been adjusted where it is not virtually certain that the Group
will be able to utilise the losses.
ACQUIRED OPERATIONS CONTINUED
A number of the revaluation adjustments have resulted in policy alignment with
BHP Billiton accounting policies and relate to:
- BHP Billiton policy in respect of decommissioning, site restoration and
environmental rehabilitation provisions requires that the present value of
estimated future costs of rehabilitation of operating sites is capitalised where
it gives rise to future benefits and amortised over the life of the operation.
Additional provisions have been raised in accordance with this policy.
- Under BHP Billiton`s accounting policies, mined ore stocks held underground
are not recorded as inventory until the ore is brought above ground.
Accordingly, underground stocks held by WMC at the date of acquisition have been
adjusted to a value of nil.
At the date of acquisition, the application of BHP Billiton policy will result
in WMC adopting the US dollar as the functional currency for the majority of its
operations. The provisional fair values for non-monetary items in US dollars
included in the table above will represent the acquisition historical rate for
WMC by BHP Billiton.
Since the acquisition, WMC cash flows have contributed US$16 million to the
Group`s net operating cash flows, US$50 million to net investing cash outflows
and US$2 million to net financing cash inflows.
The unaudited summarised Statement of Financial Performance of WMC for the
period 1 January 2005 to 3 June 2005 prepared in accordance with the accounting
policies applicable to WMC for that period prior to acquisition by BHP Billiton,
were as follows:
Summarised Statement of Financial Performance for the period 1 January 2005 to 3
June 2005
US$M
Revenue from ordinary activities 1 322
Profit from ordinary activities before income tax 394
Income tax expense attributable to ordinary activities (108)
Net profit 286
Net exchange differences recognised directly to equity 2
Total changes in equity other than those resulting from transactions 288
with owners
The amounts included in the table above are the Australian dollar values
converted to US dollars at an average rate for the period of 0.7739.
Statement of Financial Performance for the year ended 31 December 2004
For the year ended 31 December 2004, WMC reported an audited post tax profit of
A$1 327 million (US$977 million) prepared in accordance with the accounting
policies used by WMC for the financial year to 31 December 2004.
SEGMENT RESULTS
The BHP Billiton Group has grouped its major operating assets into the following
Customer Sector Groups (CSGs):
- Petroleum (exploration for and production, processing and marketing of
hydrocarbons including oil, gas and LNG);
- Aluminium (exploration for and mining of bauxite, processing and marketing of
aluminium and alumina);
- Base Metals (exploration for and mining, processing and marketing of copper,
silver, zinc, lead and copper by-products including gold);
- Carbon Steel Materials (exploration for and mining, processing and marketing
of coking coal, iron ore and manganese);
- Diamonds and Specialty Products (EKATI diamond mine, titanium operations,
fertilisers and exploration, and technology activities);
- Energy Coal (exploration for and mining, processing and marketing of steaming
coal); and
- Stainless Steel Materials (exploration for and mining, processing and
marketing of chrome and nickel).
Net unallocated interest represents the charge to profit of debt funding to the
BHP Billiton Group.
Group and unallocated items represent Group centre functions and certain
comparative data for divested assets and investments.
It is the Group`s policy that inter-segment sales are made on a commercial
basis.
Industry segment information
US$ million External Inter- Share of Gross Gross
Revenue segment net profit Profit segment segment
(a) revenue of before assets liabilities
(a) equity tax(b)
accounted (c)
investments
Year ended
30 June 2005
Petroleum 6 175 62 - 2 014 6 563 2 241
Aluminium 5 324 5 - 939 6 244 790
Base Metals 4 609 - 194 1 834 9 127 1 759
Carbon Steel 7 330 27 148 2 346 5 297 1 973
Materials
