| Wed 15 Feb 2006, 8:57 | | BHP Billiton Plc - Results for the half-year ended |
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BIL
BIBLT
BHP Billiton Plc - Results for the half-year ended 31 December 2005
BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
ISIN: GB0000566504
15 February 2006
BHP BILLITON RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2005
* Record half year financial results. Underlying EBITDA up 42% to US$8.0
billion and underlying EBIT up 43% to US$6.7 billion.
* Attributable profit up 48% to US$4.4 billion.
* Underlying EBIT margin increased to 42% and solid Return on Capital
Employed at 31%.
* Record half year production volumes for aluminium, copper, nickel and LNG.
* Five major growth projects approved. The current project pipeline,
consisting of projects in execution or in feasibility, now includes 25
projects, comprising US$14.4 billion of investments.
* Integration of WMC Resources Ltd (WMC) completed ahead of schedule.
* Interim dividend of 17.5 US cents per share, an increase of 30% on the
prior period interim dividend.
* US$2 billion Capital Management initiative announced.
Half year ended 31 December 2005 2004
US$M US$M Change
Revenue together with share of 18 172 15 207 19.5%
jointly controlled entities"
revenue
Underlying EBITDA (1) 7 971 5 619 41.9%
Underlying EBIT (1) (2) 6 671 4 665 43.0%
EBIT - Profit from operations 6 259 4 369 43.3%
Attributable profit 4 364 2 953 47.8%
Net operating cash flow (3) 4 308 3 197 34.8%
Basic earnings per share (US cents) 72.1 47.7 51.2%
Underlying EBITDA interest coverage 40.1 46.6 (13.9)%
(times) (1) (4)
Dividend per share (US cents) 17.5 13.5 29.6%
The following definitions apply throughout this profit release:
(1) Underlying EBIT is earnings before net finance costs and taxation, and
jointly controlled entities" net finance costs and taxation. Underlying EBITDA
is underlying EBIT before depreciation, impairments, and amortisation of US$1
300 million (comprising Group depreciation, impairments and amortisation of US$1
137 million and jointly controlled entities" depreciation and amortisation of
US$163 million) for the half year ended 31 December 2005 and US$954 million
(comprising Group depreciation, impairments and amortisation of US$809 million
and jointly controlled entities" depreciation and amortisation of US$145
million) for the half year ended 31 December 2004. We believe that Underlying
EBIT and Underlying 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.
(2) Underlying EBIT is used to reflect the underlying performance of BHP
Billiton"s operations. Underlying EBIT is reconciled to EBIT - Profit from
operations on page 3.
(3) Net operating cash flow includes dividends from jointly controlled entities
and is after net interest and taxation.
(4) For this purpose, net interest includes net finance costs of jointly
controlled entities, and 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 IFRS and are
unaudited. All references to the corresponding period are to the half year
ended 31 December 2004.
RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2005
Commentary on the Group Interim Results
Introduction
The first half of the 2006 financial year generated a strong result for BHP
Billiton and today we have announced the fifth consecutive half year of record
results for the Group. Attributable profit was US$4.4 billion, which is an
increase of 47.8% over the same period last year. The consistent focus on the
optimisation and growth of our portfolio of world class assets, combined with
our unique customer centric marketing structure has positioned the company to
actively participate in the current strong demand and price environment for our
commodities. Half year operational records were also accomplished, with record
production achieved for four major and two minor commodities.
Our strategy of investing throughout the cycle in sustainable, value creating
growth continued, with five additional major growth projects approved in the
period. These projects have an expected spend of US$2.9 billion, bringing our
total project pipeline to US$14.4 billion of investment. (This includes 18
projects currently under development totalling US$8.9 billion.) Each of these
projects has been subject to our rigorous evaluation and approval process to
ensure they will return value to our shareholders, regardless of global economic
conditions. However, we continue to be faced with industry challenges in the
delivery of these projects to budget. These challenges include shortages of
skilled labour, construction and drilling plant and machinery, and currency
strength against the US dollar. All of these have led to rising input costs.
These pressures have also added significantly to operating costs. However,
increased commodity prices and volumes, along with the continuation of our
business excellence programme, has led to a Group Underlying EBIT margin and
Return on Capital Employed of 41.9% and 31.2% respectively.
Integration of the WMC assets was completed during the period and the target for
cost efficiencies (of A$115 million per annum) was exceeded. Record half year
production was achieved at both the Nickel West and Southern Cross Fertiliser
operations (both Australia), while drilling continues at Olympic Dam (Australia)
in advance of the proposed expansion.
Dividend and Capital Management
The Board today declared an interim dividend of 17.5 US cents per share. This
follows on from the rebasing of the dividend in February 2005 from 9.5 US cents
per share to 13.5 US cents per share,. Today"s declared dividend is an increase
of 3.0 US cents per share (20.7%) over last year"s final dividend of 14.5 US
cents per share, or up 29.6% year on year. The interim dividend has increased
by 118.8% (from 8.0 to 17.5 US cents per share) over the past 2 years,
reflecting the strength of the underlying cash flows of the business, the
continued strong pricing environment and confidence in our ability to
consistently deliver earnings and cash flow to support this higher level of
dividend going forward. We intend to continue with our progressive dividend
policy, with further increases dependent upon the expectations for future
investment opportunities and market conditions at the time of declaration.
We also intend to return a further US$2.0 billion to shareholders over the next
18 months through a series of share buy-backs. As outlined today in a separate
announcement, this will commence immediately with an off-market buy-back of
approximately A$1.5 billion (US$1.1billion) in BHP Billiton Limited shares.
This will be followed at a later stage by on-market purchases, most likely of
BHP Billiton Plc shares, using the balance of the US$2.0 billion not used in the
off-market buy-back.
Today"s announcement follows on from last year"s US$2.0 billion capital
management initiative and is consistent with our practice of returning surplus
capital to shareholders where appropriate, and in a form that maximises the
overall value to the Group and its shareholders. The Board remains committed to
demonstrating strong capital discipline while ensuring BHP Billiton is able to
finance its significant pipeline of growth opportunities regardless of short
term commodity price movements. At the conclusion of this initiative, BHP
Billiton will have returned US$11.4 billion to shareholders since June 2001.
WMC Integration
The acquisition of WMC was completed on 2 August 2005 and financial results for
the former WMC assets are reported separately in the Base Metals, Stainless
Steel Materials and Diamonds and Specialty Products CSGs. In an environment of
continued high prices, cash flow for the first six months has exceeded
expectations.
At the time of the announcement to acquire WMC, BHP Billiton estimated that
annual cost efficiencies of A$115 million would be achieved by eliminating
duplicate functions and using common systems and processes. As at December
2005, on-going pre-tax cost efficiencies of A$160 million per annum plus A$14
million per annum in tax benefits are estimated to have been achieved. More
than 430 people (including contractors) have left the organisation.
It is expected that final annualised cost efficiencies will exceed A$180 million
plus A$14 million per annum in tax benefits. In total, we expect approximately
500 people (including contractors) to leave the organisation.
The final one-off cost to achieve these cost efficiencies is now estimated at
A$103 million, compared to the A$120 million indicated at the time of the
announcement to acquire WMC. The current period results include A$20 million of
such costs and A$17 million are expected for the remainder of the 2006 financial
year. A$66 million was expensed in the 2005 financial year.
The Income Statement
IFRS and Underlying EBIT
BHP Billiton has adopted International Financial Reporting Standards (IFRS) from
1 July 2005, and has restated comparative amounts on a consistent basis. The
measurement differences from previous GAAP are set out in note 15 of the Interim
Financial Report. IFRS also has presentational differences from previous GAAP,
including the treatment of income from jointly controlled entities, as noted
below, and the treatment of royalty and petroleum related taxes of US$323
million (corresponding period US$375 million) which are presented as taxation,
rather than operating costs.
The introduction of IFRS has led to us reporting Underlying EBIT, which is a
measure used internally and in our Supplementary Information to reflect the
underlying performance of BHP Billiton"s operations. Underlying EBIT excludes
all net finance costs and taxation, including net finance costs and taxation of
jointly controlled entities and any significant one-off items. Under IFRS, these
amounts are included in Profit from Operations in the Income Statement. The
differences between Underlying EBIT and EBIT (Profit from operations) are set
out in the following table:
Half Year ended 31 2005 2004
December
US$M US$M
Underlying EBIT 6 671 4 665
Impact of equity accounting for
statutory purposes:
Share of jointly controlled entities" (412) (296)
net finance costs and taxation
EBIT - Profit from operations 6 259 4 369
There were no significant items in either the current or corresponding period.
Earnings
Revenue (including revenue from third party product and our share of jointly
controlled entities) was US$18.2 billion, up 19.5% from US$15.2 billion in the
corresponding period. The increase was due primarily to higher commodity
prices. Metallurgical coal, iron ore, base metals, and petroleum prices
contributed significantly to the increase in revenue. We also experienced
increased volumes from new and acquired operations.
Underlying EBITDA increased by 41.9% to US$8.0 billion (from US$5.6 billion in
the corresponding period). Underlying EBIT was US$6.7 billion compared with
US$4.7 billion for the same period last year, an increase of 43.0%.
The following table and commentary detail the approximate impact of the
principal factors that affected Underlying EBIT for the current half year
compared with the corresponding period:
US$
Million
Underlying EBIT for the half year ended 31 December 2004 4 665
Change in volumes:
Existing operations (110)
New and acquired operations 445
335
Change in sales prices 2 915
Change in cost:
Change in costs:
Costs (795)
Exchange rates 105
Price-linked costs (275)
Inflation on costs (130)
(1,095)
Asset sales 30
Ceased and sold operations (35)
Exploration (90)
Other (54)
Underlying EBIT for the half year ended 31 December 2005 6 671
Volumes
Existing operations
Increased sales volumes of copper, iron ore and export thermal coal contributed
approximately US$138 million to Underlying EBIT (measured at the prior period"s
average margins). Sales volumes of oil were lower than the corresponding period
due to natural field decline, increased down time and the loss of production
from the Typhoon/Boris facility (US). Decreased sales volumes of metallurgical
coal due to increased mine maintenance activity, expansion tie-in activity at
Hay Point Coal Terminal (Australia), and the depletion of reserves at Riverside
(Australia) also had a negative impact. Decreased sales volumes of manganese
ore in line with market demand also impacted the half year. Overall, sales
volumes from existing operations decreased Underlying EBIT by US$110 million.
New and acquired operations
New operations increased Underlying EBIT by US$445 million, primarily due to a
contribution of US$262 million from the WMC operations acquired in June 2005,
and a full six months production from ROD (Algeria), which commenced commercial
production in October 2004, and Mad Dog (US) and Angostura (Trinidad and Tobago)
which were both commissioned in January 2005.
Prices
Stronger commodity prices for most products increased Underlying EBIT by
US$2,915 million. Higher prices for metallurgical coal, iron ore, copper,
petroleum products and aluminium contributed approximately US$3,077 million,
which was partially offset by lower prices for manganese alloy, diamonds and
lower export prices for energy coal at Ingwe (South Africa).
Costs
An increased level of activity across the resources industry has led to
shortages and rising costs for labour and raw materials. This has led to
increased costs for the Group of US$795 million.
A portion of the increase in costs was deliberately incurred by the Group to
maximise production to capture current prices. Specific areas of cost increases
include labour and contractor charges, fuel, freight and consumables, as well as
maintenance and other operating costs. Depreciation charges also increased due
to changes in the estimates of economic lives of certain operations and the
commissioning of a number of new operations.
Exchange rates
Exchange rate movements had a positive impact on Underlying EBIT of US$105
million compared with the same period from last year. The translation of net
monetary liabilities had a favourable impact on Underlying EBIT of US$155
million principally due to exchange gains from the strengthening of the US
dollar against the Australian dollar in the six months to 31 December 2005,
compared to losses in the corresponding period. This was partly offset by an
unfavourable impact of exchange rate movements on operating costs of US$50
million.
Half Half
Currency year year 31 Dec 30 June 31 Dec 30 June
ended ended 2005 2005 2004 2004
31 Dec 31 Dec closing closing closing closing
2005 2004
average average
US dollar: Australian 0.75 0.73 0.73 0.76 0.78 0.69
dollar
South African rand: 6.52 6.21 6.33 6.67 5.65 6.27
US dollar
Price-linked costs
Higher price-linked costs decreased Underlying EBIT by US$275 million, primarily
because of higher royalties being imposed for all Carbon Steel Material products
and increased TCRCs, including price participation charges, for copper.
Inflation on costs
Inflationary pressures, mainly in South Africa and Australia, had an
unfavourable impact on Underlying EBIT of US$130 million.
Asset sales
Underlying EBIT increased US$30 million from the corresponding period due to
asset sales. This was a reflection of current period asset sales of US$86
million, principally relating to the sale of BHP Billiton"s interest in the
Wonderkop joint venture (South Africa). This was partially offset by the profit
on the sale of an equity participation in the North West Shelf Project"s
(Australia) gas reserve to China National Offshore Oil Corporation of US$56
million in the corresponding period.
Ceased and sold operations
The net loss of earnings from ceased or sold operations had a US$35 million
unfavourable impact on Underlying EBIT. Current period Underlying EBIT primarily
excludes results from disposal of the Chrome business (South Africa) and the
Laminaria and Corallina oil fields (Australia) totalling US$110 million. This
was partly offset by a favourable impact of US$75 million in relation to care
and maintenance costs incurred at Boodarie Iron (Australia) in the corresponding
period. These were fully provided for in June 2005.
Exploration
Exploration expense was US$90 million higher, due mainly to increased spend on
petroleum activity in the Gulf of Mexico.
Other
Other items decreased Underlying EBIT by US$54 million. These include one-off
costs caused by hurricane activity in the Gulf of Mexico and freight activities.
Partially offsetting these was an increase in the Underlying EBIT contribution
from sales of third party product of US$80 million.
Net finance costs
Net finance costs increased to US$215 million, from US$192 million in the
corresponding period. This increase was driven largely by higher average debt
balances following the funding of the acquisition of WMC in June 2005, partially
offset by exchange gains on debt, higher capitalised interest and higher
interest rates on deposits.
Taxation expense
The taxation expense on profit before tax was US$1,616 million, representing an
effective rate of 26.7%.
Excluding the impacts of royalty and petroleum resource related taxation and non
tax-effected foreign currency adjustments, translation of tax balances and other
functional currency translation adjustments, and including the taxation expense
of jointly controlled entities, the underlying effective rate was 27.8%. When
compared to the UK and Australian statutory tax rate (30%), the underlying
effective tax rate benefited 2.7% due to the recognition of US tax losses
(US$175 million).
Following the transition to IFRS, royalty and petroleum resource related taxes
are treated as taxation arrangements when they have the characteristics of a
tax. This is considered to be the case when they are imposed under Government
authority and the amount payable is calculated by reference to revenue derived
(net of any allowable deductions) as determined by relevant legislation. As a
result, such royalty costs which would previously have been reported as an
operating cost in Underlying EBIT are now reported as a taxation expense.
Obligations arising from royalty arrangements that do not satisfy these criteria
continue to be recognised in operating expenses.
Cash Flows
Statutory net operating cash flow after interest and tax increased by 34.8% to
US$4.3 billion. This included increased cash generated from operating activities
(mainly due to higher profits), which was partly offset by increased taxation
payments.
Capital and exploration expenditure totalled US$2,665 million for the period.
Expenditure on major growth projects amounted to US$1,482 million, including
US$254 million on petroleum projects and US$1,228 million on minerals projects.
Other capital expenditure was US$835 million. Investment cash flow was US$505
million, due mainly to the purchase of the remaining shares to complete the WMC
acquisition. In addition, the corresponding period includes US$1.78 billion
distributed to shareholders as part of the US$2.0 billion capital management
programme.
Net debt, comprising cash and interest bearing liabilities, was US$8.7 billion,
the same level as at 30 June 2005. Gearing, which is the ratio of net debt to
net debt plus net assets, was 28.9% at 31 December 2005, compared with 32.7% at
30 June 2005.
Underlying net debt (which varies from net debt above as it includes net debt of
jointly controlled entities) was US$9.9 billion, down from US$10.0 billion at 30
June 2005. Underlying gearing was 31.5% at 31 December 2005, compared to 35.8%
at 30 June 2005.
In October 2005 BHP Billiton filed a US$3.0 billion shelf registration statement
with the US Securities and Exchange Commission (SEC) and in December 2005,
issued a SEC Global Bond comprising US$600 million of 5.00% Senior Notes due
2010 and US$750 million of 5.25% Senior Notes due 2015. The proceeds were used
to partially repay the financing arranged to fund the WMC acquisition and to
repay commercial paper.
Dividend
An interim dividend for the half year ended 31 December 2005 of 17.5 US cents
per share will be paid to shareholders on 22 March 2006.
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. BHP Billiton Plc dividends are mainly paid in pounds
sterling to shareholders on the UK section of the register and South African
rands to shareholders on the South African section of the register. The foreign
currency exchange rates that applied two business days before the declaration of
the dividend were used for conversion of currencies (detailed in the table
below). As announced on 27 January, shareholders who wish to alter the
currency in which they receive dividends must lodge an election form with the
Share Registry at least two days prior to the announcement of the dividend.
The timetable in respect of this dividend will be:
Currency conversion - 13 February 2006
Last day to trade JSE Limited (JSE) - 24 February 2006
Ex-dividend Australian Stock Exchange (ASX) - 27 February 2006
Ex-dividend JSE Limited (JSE) - 27 February 2006
Ex-dividend London Stock Exchange (LSE) - 1 March 2006
Record - 3 March 2006
Payment - 22 March 2006
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,
and transfers between the UK register and the South African register will not be
permitted, between the dates of 27 February 2006 and 3 March 2006.
The following table details the currency exchange rates applicable for the
dividend:
Dividend 17.5 US cents Exchange Dividend per
Rate ordinary share in
local currency
Australian cents 0.737679 23.723056
British pence 1.740344 10.055483
South African cents 6.174017 108.045298
New Zealand cents 0.678210 25.803217
Portfolio Management
During the half year we disposed of a number of assets and interests including
the divestment of our 50% interest in the Wonderkop joint venture (South
Africa), the Green Canyon 18 and 60 oil fields in the Gulf of Mexico (US), our
one third interest in the Hi-Fert fertiliser business (Australia) and our
ownership of the Zululand Anthracite Colliery (South Africa).
Corporate Governance
The Hon. E Gail de Planque was appointed a Non-executive Director of BHP
Billiton Limited and BHP Billiton Plc with effect from 19 October 2005. Mr
Michael Chaney and Lord Renwick of Clifton retired as Directors of both Boards
on 25 November 2005. On 8 December 2005 it was announced that Mr Marius
Kloppers (Group President Non-Ferrous Materials) and Mr Chris Lynch (Chief
Financial Officer) would join the Board as Executive Directors from 1 January
2006.
Following a review of the Sustainability Committee, the Board restructured the
Committee. Its members are now Dr David Brink (Chairman), The Hon. E Gail de
Planque and Dr John Schubert. Mr Carlos Cordeiro has been appointed a member of
the Remuneration Committee, and Dr Schubert has ceased being a member of that
Committee.
Outlook
Over the last six months the global economy has continued to be buoyant with
economic growth becoming more broadly based towards the end of last year as
emerging recoveries in Japan and Europe offset a slowing in the US. China and
other countries in Asia have benefited from the robust global economy, while
strong commodity prices have led to significant gains in the Russian and Latin
American economies. Global economic resilience has continued despite a series
of potential disruptions including rising oil prices and a move to higher
interest rates in the US.
The immediate outlook for the global economy continues to be promising.
Industrial production growth in the OECD is accelerating and the rise in the
leading indicators suggests further improvement. In China, recent revisions
point to the economy growing at an average of around ten per cent per annum over
the past three years and although Chinese economic growth is likely to slow
somewhat in 2006 it will remain at a relatively high level. Elsewhere, emerging
markets are likely to enjoy robust economic conditions, although for some
countries a high level of indebtedness and/or political uncertainty could dampen
the outlook.
The positive demand environment and the continued inability of the supply side
to respond fast enough to increased demand means prices continue to remain
strong relative to historical levels. This imbalance in demand and supply is
caused by the demand growth in emerging economies and the lack of latent mine
capacity. In addition, delays to new capacity caused by increasing pressures on
construction costs, the availability of skilled labour and raw materials look
set to continue for at least the next several years. While the impact of this on
prices will vary by commodity, the fundamentals of our business remain solid as
we bring on new volumes to take advantage of strong demand and high relative
prices. Our confidence in the demand outlook for the next 18-24 months (in the
absence of unforeseen circumstances) and higher than expected prices means we
are able to continue to return surplus capital to shareholders, while meeting
our needs to continue to expand our productive capacity.
CUSTOMER SECTOR GROUP SUMMARY
The following table provides a summary of the Customer Sector Group results for
the half year ended 31 December 2005 and the corresponding period.
Half year ended Revenue together with Underlying EBIT (1)
31 December (US$ share of jointly
Million) controlled entities"
revenues (1)
2005 2004 Change 2005 2004 Change
Petroleum 2 960 3 171 (6.7%) 1 436 1 265 13.5%
Aluminium 2 344 2 318 1.1% 406 449 (9.6%)
Base Metals 4 031 2 341 72.2% 1 893 1 040 82.0%
Carbon Steel 4 728 3 224 46.7% 2 275 991 129.6%
Materials
Diamonds and 679 1 114 (39.0%) 261 406 (35.7%
Specialty )
Products
Energy Coal 1 769 1 640 7.9% 205 296 (30.7%
)
Stainless Steel 1 358 1 013 34.1% 374 337 11.0%
Materials
Group and 352 417 (15.6%) (179) (119) N/A
unallocated items
(2)
Less: inter- (49) (31) N/A - - -
segment turnover
BHP Billiton 18 172 15 207 19.5% 6 671 4 665 43.0%
Group
(1) Revenue together with share of jointly controlled entities" revenue, and
Underlying EBIT include trading activities comprising the sale of third party
product. Underlying EBIT is defined on page 1.
(2) Includes consolidation adjustments, unallocated items and external sales
from the Group"s freight, transport and logistics operations.
Petroleum
Underlying EBIT was US$1,436 million, an increase of US$171 million or 13.5%,
compared with the same period last year. This was mainly due to higher average
realised prices for all petroleum products, including higher averaged realised
oil prices per barrel of US$58.25 (compared with US$44.85), higher average
realised natural gas prices of US$3.13 per thousand standard cubic feet
(compared with US$2.94), and higher liquefied natural gas prices of US$6.81 per
thousand standard cubic feet (compared to US$5.68). Production from ROD
(Algeria), which commenced commercial production in October 2004, and Mad Dog
(US) and Angostura (Trinidad and Tobago), which were both commissioned in
January 2005, and a positive impact from foreign exchange movements also had a
favourable impact.
These factors were partly offset by lower production volumes from existing
operations. The corresponding period had also included a US$56 million profit on
the sale of an equity participation in the North West Shelf Project"s
(Australia) gas reserves to China National Offshore Oil Corporation. Other
unfavourable impacts included one-off costs for the investigation and salvage of
the Typhoon facility (US) following hurricane damage and the loss of earnings
following the divestment in the corresponding period of our interests in the
Laminaria and Corallina (Australia) oil fields.
Exploration expenditure charged to profit was US$123 million (corresponding
period: US$55 million) reflecting a capitalisation rate of 51.0% (corresponding
period: 59.9%). Gross expenditure on exploration of US$251 million was US$114
million higher than the corresponding period as a result of increased spending
on activity in the Gulf of Mexico.
Aluminium
Underlying EBIT of US$406 million fell US$43 million or 9.6% compared with the
same period last year. This was mainly due to higher fuel, power and raw
material costs (principally caustic soda), as well as increased pot relining
costs. In addition, the application of IFRS required Aluminium to account for
embedded derivatives which reduced Underlying EBIT by US$22 million in the
current period. Higher realised prices for aluminium, and an improved result
due to the unwinding of a metal take-off contract of US$35 million in the
previous period partly offset this result. The average LME aluminium price
increased to US$1,952 per tonne, compared with US$1,764 per tonne for the
corresponding period.
Base Metals
Underlying EBIT was US$1,893 million, an increase of US$853 million, or 82.0%
compared with the corresponding period. This was mainly as a result of higher
average LME prices for all base metals products. In particular copper LME
prices increased to US$1.84/lb compared with US$1.35/lb for the same period last
year. The inclusion of Olympic Dam (Australia) results for the current period,
following its acquisition in June 2005, also contributed positively. Higher
sales volumes for all Base Metals products, but particularly for copper and
molybdenum (in which record production levels were achieved during the period),
also led to the higher EBIT result.
However, higher price-linked and input costs (mainly reflecting increased TCRC
costs including price participation), higher statutory labour and production
bonuses, and increased fuel and other commodity linked costs, all had an impact.
Reduced production at Cerro Colorado (Chile) following an earthquake in June
2005 also had an unfavourable impact, although this was partially mitigated by
business interruption insurance.
Carbon Steel Materials
Underlying EBIT was US$2,275 million, up US$1,284 million or 129.6% from the
corresponding period. Contributing factors included stronger commodity prices
for iron ore and metallurgical coal, although manganese alloy prices were lower.
Increased operating costs at most operations also affected Underlying EBIT. In
particular this included price linked royalties and higher contractor and diesel
costs, which are reflective of the current heated market conditions. Increased
mining costs are being incurred across most Carbon Steel Materials operations to
maximise production in the current high demand environment. These additional
costs are largely cyclical in nature. Inflationary pressures on Australian and
South African operations also had an unfavourable impact compared with the
corresponding period. Depreciation charges increased at Western Australian Iron
Ore, Queensland Coal and Illawarra Coal operations (all Australia) due to the
commissioning of new plant at these operations.
The same period last year included costs in relation to Boodarie Iron while the
plant was on care and maintenance. There was no impact on Underlying EBIT in
the current period as all anticipated closure costs were provided for in June
2005 following the decision to close this operation.
Diamonds and Specialty Products
Underlying EBIT was US$261 million, a decrease of US$145 million or 35.7%,
compared with the corresponding period. This was due to lower realised prices
for diamonds (down 19.6% from the corresponding period) because of lower carat
quality, higher costs in relation to the processing of lower grade material and
lower diamond sales volumes (down 3.1% from the corresponding period). In
addition, the corresponding period included earnings from Integris Metals (US),
which was sold in January 2005. However, the inclusion for the first time of
earnings from Southern Cross Fertiliser operations (Australia) (formerly
Queensland Fertilizer Operations) acquired in June 2005 was positive, as was
higher realised prices and sales volumes for titanium feedstock.
Half yearly Ekati (Canada) diamond production decreased by 21.1% compared to the
corresponding period mainly reflecting the processing of lower grade ore. The
second half of the 30 June 2006 financial year will continue to be negatively
impacted by the processing of lower grade and lower value material at Ekati.
Energy Coal
Underlying EBIT was US$205 million, a decrease of US$91 million or 30.7%,
compared with the corresponding period. This was mainly a result of higher unit
costs across all operations. Costs increased at Ingwe (South Africa) because of
higher depreciation resulting from changes in the estimates of the economic
lives of certain operations, the depreciation of rehabilitation assets and
inflationary impacts. Increased demurrage at Cerrejon Coal (Colombia) and lower
yields and equipment availability combined with increased strip ratios at Hunter
Valley Coal (Australia) also led to higher costs. Lower export prices at Ingwe
also had a negative impact. However, increased export sales volumes from Ingwe
along with a favourable impact from the depreciation of the rand against the US
dollar, positively contributed to the result.
Stainless Steel Materials
Underlying EBIT was US$374 million, an increase of US$37 million or 11.0%,
compared with the corresponding period. The inclusion of results from the Nickel
West operations (Australia), acquired in June 2005, as well as a US$61 million
profit on sale of BHP Billiton"s interest in the Wonderkop joint venture (South
Africa), were the key factors in the increased result.
Negative impacts included lower production and increased costs at the QNI Yabulu
refinery (Australia) as a result of lower operational performance and tie-in
activity relating to the refinery expansion. The average LME nickel price also
fell to US$6.17/lb from US$6.36/lb in the corresponding period. Also offsetting
the increase in Underlying EBIT was US$59 million included in the comparative
period result relating to earnings from the Group"s Chrome operations, which BHP
Billiton sold effective 1 June 2005.
Group and Unallocated Items
Underling net corporate operating costs excluding exchange impacts were US$108
million compared to US$51 million in the corresponding period - an increase of
US$57 million. This was due primarily to higher net insurance costs of US$24
million associated with insurance claims arising from natural disasters and
incidents, which are primarily offset by insurance income in the CSGs results.
Employee share award and pension costs increased US$10 million over the
corresponding period. In addition, higher corporate IT projects and regulatory
compliance, including Sarbanes Oxley, contributed approximately US$12 million to
the increased costs.
Increased costs were also incurred in the current period in relation to the
transition and integration of the WMC business.
Minerals exploration and technology expenditure has increased from US$27 million
to US$48 million, mainly due to increased exploration activity in Africa and
Brazil.
Forward-looking statements Certain statements contained in this release,
including statements in the section entitled `Introduction" and `Outlook", may
constitute `forward-looking statements" within the meaning of the US Private
Securities Litigation Reform Act of 1995. We undertake no obligation to revise
the forward-looking statements included in this release to reflect any future
events or circumstances. Our actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Factors that could cause or contribute to such differences
are discussed in the sections entitled `Key Information-Risk Factors";
`Operating and Financial Review and Prospects-Our Business-External Factors
Affecting Our Results" and `Trends and Uncertainties" included in our annual
report on Form 20-F as amended by the Form 20-F/A for the fiscal year ended 30
June 2005, which we filed with the US Securities and Exchange Commission (SEC)
on 3 October 2005 and 10 November 2005 respectively and is available on the
SEC"s website at `www.sec.gov". Nothing in this release should be construed as
either an offer to sell or a solicitation of an offer to buy or sell securities
in any jurisdiction.
Further information on BHP Billiton can be found on our Internet site:
http://www.bhpbilliton.com
Australia United Kingdom
Jane Belcher, Investor Relations Mark Lidiard, Investor & Media
Tel: +61 3 9609 3952 Relations
Mobile: +61 417 031 653 Tel: +44 20 7802 4156
email: Mobile: + 44 7769 934 942
Jane.H.Belcher@bhpbilliton.com email: Mark.Lidiard@bhpbilliton.com
Samantha Evans, Media Relations Ariane Gentil, Media Relations
Tel: +61 3 9609 2898 Tel: +44 20 7802 4177
Mobile: +61 400 693 915 Mobile: +44 7881 518 715
email: email:
Samantha.Evans@bhpbilliton.com Ariane.Gentile@bhpbilliton.com
United States South Africa
Tracey Whitehead, Investor Alison Gilbert, Investor Relations
Relations Tel SA: +27 11 376 2121 or
Tel: +44 020 7802 4031 UK: +44 20 7802 4183
Mobile: +44 7917 648 093 email:
email: Alison.Gilbert@bhpbilliton.com
Tracey.Whitehead@bhpbilliton.com
BHP Billiton Limited
ABN 49 004 028 077
Registered in Australia
Registered Office: 180 Lonsdale Street Melbourne Victoria 3000 Australia
Telephone +61 1300 55 4757
Facsimile +61 3 9609 3015
BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
Registered Office: Neathouse Place London SW1V 1BH United Kingdom
Telephone +44 20 7802 4000
Facsimile +44 20 7802 4111
The BHP Billiton Group is headquartered in Australia
INTERIM FINANCIAL REPORT
For the half year ended 31 December 2005
Page
CONTENTS
Financial Statements
Consolidated Income Statement 15
Consolidated Balance Sheet 16
Consolidated Cash Flow Statement 17
Consolidated Statement of Recognised Income and Expense 18
Notes to the Interim Financial Statements 19
Notes to Financial Statements Page
1 Acquired operations 19
2 Business segments 20
3 Significant items 22
4 Investments accounted for using the equity method 23
5 Net finance costs 23
6 Taxation 23
7 Earnings per share 24
8 Dividends 24
9 Assets classified as held for sale 25
10 Interest bearing liabilities 25
11 Total equity 25
12 Contingent liabilities 25
13 Commitments 26
14 Subsequent events 26
15 IFRS transition 26
16 Dual Listed Companies Structure and Basis of Preparation
of Interim Financial Statements 31
17 Accounting Policies 33
Directors" Report 42
Directors" Declaration 44
Auditor"s Independence Declaration 44
Review Report 45
Consolidated Income Statement for half year ended 31 December 2005
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
Notes US$M US$M US$M
Revenue together with share of
jointly controlled entities" revenue
Group production 15 638 11 537 25 037
Third party products 2 534 3 670 6 113
18 172 15 207 31 150
Less: Share of jointly controlled (2 880) (2 410) (4 428)
entities" external revenue included
above
Revenue 15 292 12 797 26 722
Other income 297 179 757
Expenses excluding finance costs (10 771) (9 469) (19 995)
Share of profits from jointly 4 1 441 862 1 787
controlled entities
Profit from operations 6 259 4 369 9 271
Comprising:
Group production 6 148 4 338 9 157
Third party products 111 31 114
6 259 4 369 9 271
Financial income 5 93 96 216
Financial expenses 5 (308) (288) (547)
Net finance costs 5 (215) (192) (331)
Profit before taxation 6 044 4 177 8 940
Taxation 6 (1 389) (847) (1 876)
Royalty related taxation (net of 6 (227) (266) (436)
income tax benefit)
Total taxation expense (1 616) (1 113) (2 312)
Profit after taxation 4 428 3 064 6 628
Profit attributable to minority (64) (111) (232)
interests
Profit attributable to members of 4 364 2 953 6 396
BHP Billiton Group
Earnings per ordinary share (basic) 7 72.1 47.7 104.4
(US cents)
Earnings per ordinary share 7 71.9 47.5 103.9
(diluted) (US cents)
Dividends per ordinary share - paid 8 14.5 9.5 23.0
during the period (US cents)
Dividends per ordinary share - 8 17.5 13.5 28.0
proposed in the announcement of the
results for the period (US cents)
The accompanying notes form part of these financial statements.
Consolidated Balance Sheet as at 31 December 2005
31 31 30 June
December December 2005
2005 2004
Notes US$M US$M US$M
ASSETS
Current assets
Cash and cash equivalents 809 757 1 222
Trade and other receivables 3 732 2 826 3 216
Other financial assets 843 51 45
Inventories 2 509 2 042 2 399
Assets classified as held for sale 9 46 - -
Other 142 202 150
Total current assets 8 081 5 878 7 032
Non-current assets
Trade and other receivables 748 972 849
Other financial assets 927 251 255
Inventories 83 8 71
Investments in jointly controlled 3 736 3 045 3 264
entities
Property, plant and equipment 29 005 19 183 27 438
Intangible assets 455 481 461
Deferred tax assets 1 180 2 041 1 906
Other 100 69 96
Total non-current assets 36 234 26 050 34 340
Total assets 44 315 31 928 41 372
LIABILITIES
Current liabilities
Trade and other payables 3 633 2 419 3 908
Interest bearing liabilities 10 1 106 1 154 1 298
Other financial liabilities 775 - -
Current tax payable 864 698 938
Provisions 901 657 1 040
Deferred income 122 194 120
Total current liabilities 7 401 5 122 7 304
Non-current liabilities
Non-trade payables 163 159 156
Interest bearing liabilities 10 8 425 4 144 8 649
Other financial liabilities 159 - -
Deferred tax liabilities 1 370 2 895 2 372
Provisions 4 674 3 840 4 613
Deferred income 691 345 362
Total non-current liabilities 15 482 11 383 16 152
Total liabilities 22 883 16 505 23 456
NET ASSETS 21 432 15 423 17 916
EQUITY
Share capital - BHP Billiton Limited 1 628 1 591 1 611
Share capital - BHP Billiton Plc 1 234 1 234 1 234
Share premium account 518 518 518
Reserves 265 145 153
Retained earnings 17 495 11 508 14 059
Total equity attributable to members 21 140 14 996 17 575
of BHP Billiton Group
Minority interests 292 427 341
Total equity 11 21 432 15 423 17 916
The accompanying notes form part of these financial statements.
Consolidated Cash Flow Statement for half year ended 31 December 2005
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
US$M US$M US$M
Operating activities
Receipts from customers 15 582 14 161 28 425
Payments to suppliers and employees (10 246) (10 329) (18 801)
Cash generated from operations 5 336 3 832 9 624
Dividends received 921 431 1 002
Interest received 60 48 90
Interest paid (209) (134) (315)
Income tax paid (1 511) (652) (1 476)
Royalty related taxation paid (289) (328) (551)
Net operating cash flows 4 308 3 197 8 374
Investing activities
Purchases of property, plant and (2 317) (1 358) (3 450)
equipment
Exploration expenditure (including (348) (199) (531)
amounts capitalised)
Purchases of investments and funding (5) (14) (42)
of jointly controlled entities
Purchases of, or increased investment in, (500) - (6 198)
subsidiaries operations and jointly
controlled entities, net of their cash
Cash outflows from investing (3 170) (1 571) (10 221)
activities
Proceeds from sale of property, 37 38 153
plant and equipment
Proceeds from sale or redemption of 108 73 227
investments
Proceeds from sale or partial sale 111 1 675
of subsidiaries, operations and
jointly controlled entities net of
their cash
Net investing cash flows (2 914) (1 459) (9 166)
Financing activities
Proceeds from ordinary share issues 24 38 66
Proceeds from interest bearing 3 946 590 5 668
liabilities
Repayment of interest bearing (4 646) (656) (1 735)
liabilities
Purchase of shares by ESOP trusts (145) (29) (47)
Share repurchase scheme - BHP - (1 792) (1 792)
Billiton Limited
Dividends paid (877) (594) (1 404)
Dividends paid to minority interests (112) (32) (238)
Repayment of finance leases (1) (13) (22)
Net financing cash flows (1 811) (2 488) 496
Net increase in cash and cash (417) (750) (296)
equivalents
Cash and cash equivalents, net of 1 207 1 509 1 509
overdrafts, at beginning of period
Effect of foreign currency exchange
rate changes on cash and cash
equivalents (1) (5) (6)
Cash and cash equivalents, net of 789 754 1 207
overdrafts, at end of period
The accompanying notes form part of these financial statements.
Consolidated Statement of Recognised Income and Expense
for the six months ended 31 December 2005
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
Notes US$M US$M US$M
Profit for the period 4 428 3 064 6 628
Amounts recognised directly in
equity
Actuarial gains/(losses) on pension 6 (78) (149)
and medical plans
Available for sale investments:
Valuation gains/(losses) taken to 4 - -
equity
Cash flow hedges:
Gains/(losses) taken to equity (35) - -
Gains/(losses) transferred to the (34) - -
initial carrying amount of hedged
items
Exchange fluctuations of foreign (12) 42 7
currency net assets
Tax on items recognised directly to 43 29 52
or transferred from equity
(28) (7) (90)
Total recognised income and expense 4 400 3 057 6 538
for the period
Attributable to minority interests (64) (111) (232)
Attributable to members of BHP 4 336 2 946 6 306
Billiton Group
Effect of change in accounting
policy:
Impact of adoption of IAS 39 / AASB
139 (net of tax) to:
- retained earnings 11 55 - -
- hedging reserve 11 30 - -
- financial assets reserve 11 116 - -
Attributable to minority interests - - -
Attributable to members of BHP 201 - -
Billiton Group
The accompanying notes form part of these financial statements
Notes to the Interim Financial Statements
1 Acquired operations
During the prior year ended 30 June 2005 the BHP Billiton Group obtained control
of WMC Resources Ltd (WMC). WMC was acquired on 3 June 2005 for a total cash
consideration of US$7,229 million made up of a price of A$7.85 per share plus
acquisition related costs.
Due to the complexity and timing of the acquisition, the fair values of the
assets and liabilities acquired which were reported at 30 June 2005 were
provisional and are subject to review during the year ending 30 June 2006.
As at 31 December 2005, the provisional fair values have been updated to reflect
the latest information available. The review of the fair values of the assets
and liabilities acquired is still in progress, and these updated provisional
values remain subject to review during the six months to 30 June 2006.
The following table details the adjustments to the fair values of the net assets
acquired which have been reflected in the six months to 31 December 2005:
Note Provisional Adjustments Updated
fair value provisional
at fair values
acquisition at
(f) acquisition
US$M US$M US$M
Cash and cash equivalents 396 - 396
Trade and other receivables 281 (1) 280
Inventories a 615 2 617
Property, plant and equipment b 7 172 71 7 243
Other assets (including a 108 15 123
intangibles)
Trade and other payables (366) 1 (365)
Interest bearing liabilities (737) - (737)
Provisions c (233) (5) (238)
Current and deferred tax d (4) 151 147
balances
Other liabilities e (3) (234) (237)
Net assets acquired 7 229 - 7 229
Fair values of inventories and other assets acquired were updated during the six
months to 31 December 2005.
Valuations of property, plant and equipment were performed during the six months
to 31 December 2005 resulting in an increase to the value of property, plant and
equipment to reflect the finalisation of replacement cost and estimated
remaining useful lives, in particular in relation to the Olympic Dam operations.
The fair value of mineral assets have decreased to reflect the updated estimates
of the values of the assets and liabilities of the businesses acquired. In
addition, there has been a transfer of mineral asset value from the Nickel West
operations to the Olympic Dam operations following the refinement and validation
of the detailed valuation models.
Provisions have increased following a review of the level of provisioning, in
particular in relation to site restoration and environmental rehabilitation
provisions at the Olympic Dam operations, offset by decreased provisions
relating to transaction related costs.
Deferred tax assets have increased following the increase in provisions and
other liabilities, and a reduction in the estimated temporary difference arising
from the resetting of tax bases resulting from the acquisition.
Other liabilities have increased for the fair value of fixed price uranium sales
contracts with contract prices below market prices at the date of acquisition.
For presentation purposes, these amounts are classified as deferred income as
the amount will be released to revenue as the contracts are fulfilled.
These amounts differ to the amounts included in the IFRS balance sheet as
presented in the note on the impact of adopting IFRS in the financial statements
for the year ended 30 June 2005. This follows resolution of the treatment of
deferred tax on mineral assets as referred to in note 15.
Notes to the Interim Financial Statements
2 Business segments
Business segments
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, uranium 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 and titanium operations);
* Energy Coal (exploration for and mining, processing and marketing of steaming
coal); and
* Stainless Steel Materials (exploration for and mining, processing and
marketing of nickel and, prior to divestment, chrome).
Group and unallocated items represent Group centre functions, certain
comparative data for divested assets and investments, and exploration and
technology activities.
It is the Group"s policy that inter-segment sales are made on a commercial
basis.
Business segment information
US$ million Petroleum Aluminium Base Carbon Diamonds
Metals Steel and Energy
Materials Specialty Coal
Products
Half year
ended 31
December 2005
Revenue
together with
share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 2 371 1 575 3 549 4 674 679 1 399
production
Sale of third 542 769 481 34 - 370
party product
Rendering of - - 1 18 - -
services
Inter-segment 47 - - 2 - -
revenue
2 960 2 344 4 031 4 728 679 1 769
Less: share of (3) (46) (2 062) (345) (201) (222)
jointly
controlled
entities"
external
revenue
included above
Segment 2 957 2 298 1 969 4 383 478 1 547
revenue
Segment result 1 431 329 490 2 068 190 103
Other 5 - - 8 - -
attributable
income (1)
Share of - 56 1 114 160 33 77
profits from
jointly
controlled
entities
Profit from 1 436 385 1 604 2 236 223 180
operations
Net finance
costs
Taxation
Royalty
related
taxation
Profit after
taxation
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Business segment information (continued)
US$ million Stainless Group and BHP
Steel unallocated Billiton
Materials items/ Group
eliminations
Half year ended 31 December 2005
Revenue together with share of
jointly controlled entities"
revenue from external customers
Sale of group production 1 346 5 15 598
Sale of third party product 12 326 2 534
Rendering of services - 21 40
Inter-segment revenue - (49) -
1 358 303 18 172
Less: share of jointly controlled - (1) (2 880)
entities" external revenue
included above
Segment revenue 1 358 302 15 292
Segment result 374 (167) 4 818
Other attributable income (1) - (13) -
Share of profits from jointly - 1 1 441
controlled entities
Profit from operations 374 (179) 6 259
Net finance costs (215)
Taxation (1 389)
Royalty related taxation (227)
Profit after taxation 4 428
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Notes to the Interim Financial Statements
2 Business segments (continued)
Business segment information
US$ million Petroleum Aluminium Base Carbon Diamonds
Metals Steel and Energy
Materials Specialty Coal
Products
Half year
ended 31
December 2004
Revenue
together with
share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 1 924 1 590 1 978 3 109 591 1 296
production
Sale of third 1 224 728 363 90 523 344
party product
Rendering of - - - 17 - -
services
Inter-segment 23 - - 8 - -
revenue
3 171 2 318 2 341 3 224 1 114 1 640
Less: share of - (1 325) (191) (644) (196)
jointly (39)
controlled
entities"
external
revenue
included above
Segment 3 171 2 279 1 016 3 033 470 1 444
revenue
Segment result 1 260 359 209 919 335 196
Other 5 5 - - - 2
attributable
income (1)
Share of - 67 636 61 22 75
profits from
jointly
controlled
entities
Profit from 1 265 431 845 980 357 273
operations
Net finance
costs
Taxation
Royalty
related
taxation
Profit after
taxation
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Notes to the Interim Financial Statements
2 Business segments (continued)
Business segment information
US$ million Stainless Group and BHP
Steel unallocated Billiton
Materials items/ Group
eliminations
Half year ended 31 December 2004
Revenue together with share of
jointly controlled entities"
revenue from external customers
Sale of group production 1 011 10 11 509
Sale of third party product 2 396 3 670
Rendering of services - 11 28
Inter-segment revenue - (31) -
1 013 386 15 207
Less: share of jointly controlled (7) (8) (2 410)
entities" external revenue
included above
Segment revenue 1 006 378 12 797
Segment result 337 (108) 3 507
Other attributable income (1) - (12) -
Share of profits from jointly - 1 862
controlled entities
Profit from operations 337 (119) 4 369
Net finance costs (192)
Taxation (847)
Royalty related taxation (266)
Profit after taxation 3 064
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Business segment information
US$ million Petroleum Aluminium Base Carbon Diamonds
Metals Steel and Energy
Materials Specialty Coal
Products
Year ended 30
June 2005
Revenue
together with
share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 3 953 3 380 4 372 7 298 986 2 718
production
Sale of third 1 955 1 266 670 238 523 669
party product
Rendering of - - 1 34 - -
services
Inter-segment 62 5 - 27 - -
revenue
5 970 4 651 5 043 7 597 1 509 3 387
Less: share of (3) (80) (2 714) (429) (778) (416)
jointly
controlled
entities"
external
revenue
included above
Segment 5 967 4 571 2 329 7 168 731 2 971
revenue
Segment result 2 523 758 481 2 330 429 319
Other 6 26 - 2 19 1
attributable
income (1)
Share of - 139 1 285 148 77 137
profits from
jointly
controlled
entities"
Profit from 2 529 923 1 766 2 480 525 457
operations
Net finance
costs
Taxation
Royalty
related
taxation
Profit after
taxation
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Business segment information (continued)
US$ million Stainless Group and BHP
Steel unallocated Billiton
Materials items/ Group
eliminations
Year ended 30 June 2005
Revenue together with share of
jointly controlled entities" revenue
from external customers
Sale of group production 2 265 4 24 976
Sale of third party product 9 783 6 113
Rendering of services - 26 61
Inter-segment revenue - (94) -
2 274 719 31 150
Less: share of jointly controlled (8) - (4 428)
entities" external revenue included
above
Segment revenue 2 266 719 26 722
Segment result 828 (184) 7 484
Other attributable income (1) 25 (79) -
Share of profits from jointly 1 - 1 787
controlled entities"
Profit from operations 854 (263) 9 271
Net finance costs (331)
Taxation (1 876)
Royalty related taxation (436)
Profit after taxation 6 628
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated items / eliminations to
the applicable CSG / business segment.
Notes to the Interim Financial Statements
3 Significant items
Individually significant items are those items where their nature and amount is
considered material and require separate disclosure. Such items included within
the BHP Billiton Group profit for the period are detailed below.
Half year ended 31 December 2005
There were no significant items for half year ended 31 December 2005.
Half year ended 31 December 2004
There were no significant items for half year ended 31 December 2004.
Year ended 30 June 2005
Gross Tax Net
US$M US$M US$M
Significant items by category
Sale of Laminaria and Corallina 134 (10) 124
Disposal of Chrome operations 142 (6) 136
Termination of operations (266) 80 (186)
Closure plans (121) 17 (104)
Total by category (111) 81 (30)
Significant items by Customer
Sector Group
Petroleum 134 (10) 124
Base Metals (29) (4) (33)
Energy Coal (73) 21 (52)
Stainless Steel Materials 142 (6) 136
Carbon Steel Materials (285) 80 (205)
Total by Customer Sector Group (111) 81 (30)
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 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).
Provision for termination of operations
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$4 million tax expense) in relation to
other closed mining operations.
Notes to the Interim Financial Statements
4 Investments accounted for using the equity method
Material Ownership interest at BHP Contribution to profit after
shareholdings in Billiton Group reporting taxation
jointly date (a)
controlled
entities
31 31 30 31 31 30 June
December December June December December 2005
2005 2004 2005 2005 2004
% % % US$M US$M US$M
Samarco 50 50 50 163 59 148
Mineracao SA
Minera 33.75 33.75 33.75 170 84 194
Antamina SA
Carbones del 33.3 33.3 33.3 77 76 138
Cerrejon LLC
Integris - 50 - - 17 17
Metals Inc (b)
Escondida 57.5 57.5 57.5 944 552 1 090
Mozal 47.1 47.1 47.1 60 62 130
Valesul 45.5 45.5 45.5 (4) 5 9
Aluminio
Other (c) 31 7 61
Total 1 441 862 1 787
(a) Ownership interest reflects the interest held at the end of the reporting
periods. The proportion of voting power held corresponds to ownership interest.
(b) Subsequent to 31 December 2004, the BHP Billiton Group sold its interest in
Integris Metals Inc.
(c) Includes immaterial jointly controlled entities and the Richards Bay
Minerals joint venture owned 50% (31 December 2004: 50%; 30 June 2005: 50%).
5 Net finance costs
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
US$M US$M US$M
Financial expenses:
Interest on bank loans and overdrafts 71 13 34
Interest on all other loans 133 111 254
Finance lease and hire purchase interest 3 2 6
207 126 294
Dividends on redeemable preference shares 13 12 25
Discounting on provisions and other 107 78 173
liabilities
Discounting on pension and medical benefit 40 56 114
entitlements
Interest capitalised (a) (57) (42) (78)
310 230 528
Exchange differences on net debt (b) (2) 58 19
308 288 547
Financial income:
Interest income (53) (48) (118)
Return on pension plan assets (40) (48) (98)
(93) (96) (216)
Net finance costs 215 192 331
(a) Interest has been capitalised at the rate of interest applicable to the
specific borrowings financing the assets under construction or, where financed
through general borrowings, at a capitalisation rate representing the average
interest rate on such borrowings. For the half year ended 31 December 2005 the
capitalisation rate was 4.6 per cent (31 December 2004: 4.25 per cent; 30 June
2005: 4.6 per cent).
(b) Exchange differences on net debt primarily represent the effect on
borrowings of movements in the South African rand against the US dollar.
6 Taxation
Taxation expense including royalty related Half Half Year
taxation year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
US$M US$M US$M
UK taxation expense 131 57 206
Australian taxation expense 1 180 808 1 613
Overseas taxation expense 305 248 493
Taxation expense 1 616 1 113 2 312
Notes to the Interim Financial Statements
7 Earnings per share
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
Basic earnings per share (US cents) 72.1 47.7 104.4
Diluted earnings per share (US cents) 71.9 47.5 103.9
Basic earnings per American Depositary 144.2
Share (ADS) (US cents) (a) 95.4 208.8
Diluted earnings per American Depositary 143.8
Share (ADS) (US cents) (a) 95.0 207.8
Basic earnings (US$ million) 4 364 2 953 6 396
Diluted earnings (US$ million) (b) 4 370 2 956 6 399
The weighted average number of shares used for the purposes of calculating
diluted earnings per share reconciles to the number used to calculate basic
earnings per share as follows:
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
Weighted average number of shares Million Million Million
Basic earnings per share denominator 6 055 6 195 6 124
Shares and options contingently issuable 26 29 34
under employee share ownership plans
Diluted earnings per share denominator 6 081 6 224 6 158
(a) For the periods indicated, each ADS represents two ordinary shares.
(b) Diluted earnings are calculated after adding back dividend equivalent
payments of US$6 million (31 December 2004: US$3 million; 30 June 2005: US$3
million) that would not be made if potential ordinary shares were converted to
fully paid
8 Dividends
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
US$M US$M US$M
Dividends paid (a)
BHP Billiton Limited (b) 520 358 842
BHP Billiton Plc - Ordinary shares 358 234 567
- Preference shares (c) - - -
878 592 1 409
Dividends declared in the announcement of
the results for the period (d)
BHP Billiton Limited 628 484 1,004
BHP Billiton Plc - Ordinary shares 432 333 691
- Preference shares (c) - - -
1 060 817 1 695
Total dividends paid or payable 1 938 1 409 3 104
31 31 30 June
December December 2005
2005 2004
US cents US cents US cents
Dividends declared in the announcement of
the results for the period (per share)
Interim dividend (a) (b) 17.5 13.5 13.5
Final dividend (a) N/A N/A 14.5
17.5 13.5 28.0
Dividends are declared after period end in the announcement of the results for
the period. Interim dividends are declared in February and paid in March. Final
dividends are declared in August and paid in September. Dividends declared are
not recorded as a liability at the end of the period to which they relate.
Dividends are stated net of amounts which are not payable outside the BHP
Billiton Group under the terms of the share repurchase scheme and ESOP trusts.
(a) Each American Depository Share (ADS) represents two ordinary shares of BHP
Billiton Limited or BHP Billiton Plc. Dividends declared on each ADS represent
twice the dividend declared on BHP Billiton shares.
(b) BHP Billiton Limited dividends for all periods presented are fully franked
based on a tax rate of 30%.
(c) 5.5 per cent dividend on 50,000 preference shares of GBP1 each (2004: 5.5
per cent).
(d) Subsequent to half year end, on 15 February 2006, BHP Billiton declared an
interim dividend of 17.5 US cents per share (US$1,060 million) which will be
paid on 22 March 2006. BHP Billiton Limited dividends will be fully franked.
Notes to the Interim Financial Statements
9 Assets classified as held for sale
BHP Billiton"s 45.5% joint venture interest in Valesul Aluminio SA, an aluminium
smelter located in Brazil, forming part of the Aluminium CSG, is presented as
held for sale following the completion of a divestment review by the Group. A
sale is expected to be completed in the second half of financial year 2006.
At 31 December 2005, the carrying value of the Group"s equity accounted share of
Valesul is US$46 million.
10 Interest bearing liabilities
On 6 December 2005, the Group issued a two tranche Global Bond under its debt
shelf registration statement. The Global Bond comprised US$600 million of 5.00%
Senior Notes due 2010 and US$750 million of 5.25% Senior Notes due 2015. The
proceeds were used to repay existing debt.
11 Total equity
Half Half Year
year year ended
ended ended 30 June
31 31 2005
December December
2005 2004
US$M US$M US$M
Total equity opening balance 17 916 14 743 14 743
Adjustment for adoption of IAS 39 / AASB 55 - -
139 - Retained earnings
- Hedging reserve 30 - -
- Financial asset reserve 116 - -
Opening balance as restated 18 117 14 743 14 743
Total changes in the Statement of 4 336 2 946 6 306
Recognised Income and Expense
Transactions with owners - contributed 17 33 56
equity
Dividends (878) (592) (1 409)
Accrued employee entitlement to share 34 25 53
awards
Purchases of shares made by ESOP trusts (145) (29) (47)
Cash settlement of employee share awards - (6) (3)
BHP Billiton share buy back - (1 777) (1 777)
Total changes in minority interests (49) 80 (6)
Total equity closing balance 21 432 15 423 17 916
The adoption of IAS 39 / AASB 139 resulted in a US$201 million increase in
equity attributable to BHP Billiton shareholders at 1 July 2005. This was net
of consequential increases in deferred tax liabilities of US$37 million.
This represents the net gain on marking to market of qualifying hedges, embedded
derivatives, available for sale investments and certain derivatives that do not
qualify as hedges, which were not recognised prior to 1 July 2005. The major
balance sheet items affected were financial assets: increase of US$1,279
million, financial liabilities: increase of US$634 million, and borrowings:
increase of US$411 million. The net impact on other balance sheet items was a
debit of US$3 million.
The current period impact was an increase in attributable profit of US$40
million, of which US$16 million was included in financial expenses.
12 Contingent liabilities
31 30
December June
2005 2005
US$M US$M
Contingent liabilities at balance date, not
otherwise provided for in the financial report, are
categorised as arising from:
Jointly controlled entities
Other (a) 153 136
153 136
Subsidiaries and jointly controlled assets
(including guarantees)
Performance guarantees (b) 1 1
Other (a) 209 123
210 124
Total contingent liabilities 363 260
(a) Other contingent liabilities relate predominantly to actual or potential
litigation of the Group for which amounts are reasonably estimable but the
liability is not probable and therefore the Group has not provided for such
amounts in these financial statements. The amounts relate to a number of actions
against the Group, none of which are individually significant. Additionally,
there are a number of legal claims or potential claims against the Group, the
outcome of which cannot be foreseen at present, and for which no amounts have
been included in the table above.
(b) The BHP Billiton Group has entered into various counter-indemnities of
performance guarantees related to its own future performance in the normal
course of business.
13 Commitments
31 30
December June
2005 2005
US$M US$M
Capital expenditure commitments not provided for in
the financial statements
Due not later than one year 2 566 2 308
Due later than one year and not later than five 482 110
years
Total capital expenditure commitments 3 048 2 418
14 Subsequent events
No matters or circumstances have arisen since the end of the half year that have
significantly affected, or may significantly affect, the operations, results of
operations or state of affairs of the BHP Billiton Group in subsequent
accounting periods.
15 IFRS transition
As stated in note 17 Accounting Policies, this is the BHP Billiton Group"s first
consolidated financial report prepared in accordance with IFRS.
The accounting policies set out in this financial report have been applied for
the half year ended 31 December 2005, the half year ended 31 December 2004, the
year ended 30 June 2005, and in the preparation of an opening IFRS balance sheet
at 30 June 2004.
In preparing its opening IFRS balance sheet, the BHP Billiton Group has adjusted
amounts reported previously in financial reports prepared in accordance with its
previous basis of accounting (previous GAAP). An explanation of how the
transition from previous UK and Australian GAAP to IFRS has affected the Group"s
financial position and financial performance is set out in the following tables
and accompanying notes.
The amounts presented below differ to the amounts presented in the note on the
impact of adopting IFRS in the financial statements for the year ended 30 June
2005. This follows resolution of the treatment of two items identified in that
note as being subject to interpretation, and so revision. The amounts in the
tables below are presented based on the application of the revised
interpretation from the date of transition to IFRS:
* Royalties and resource rent taxes which are in the nature of an income tax are
now measured and presented as income tax in accordance with IAS 12 / AASB 112
deferred tax principles. At 30 June 2005 these were accounted for as operating
costs; and
* Deferred tax liabilities are no longer recorded on non-tax depreciable assets,
such as mineral rights, where a tax base exists for capital gains tax, and that
tax base exceeds the book base. At 30 June 2005 a deferred tax liability was
recorded by reference to the tax base for income tax purposes.
15 IFRS transition continued
The following table presents a summary of the impact of IFRS on net equity as at
30 June 2005, 31 December 2004 and 1 July 2004.
Reconciliation of net equity - UK GAAP
Note As at As at As at
30 June 31 1 July
2005 December 2004
2004
US$M US$M US$M
Net equity as previously reported 17 489 14 380
under UK GAAP 14 768
IAS 19 / AASB 119 Post-retirement (527)
pension obligations - pre tax a (650) (627)
IAS 19 / AASB 119 Post-retirement 135
pension obligations - deferred tax a 158 164
effect
IAS 19 / AASB 119 Post-retirement (76)
medical benefits - pre tax a (111) (101)
IAS 19 / AASB 119 Post-retirement 21
medical benefits - deferred tax effect a 30 28
IAS 12 / AASB 112 Deferred income tax (202)
accounting b (226) (73)
IAS 12 / AASB 112 Remeasurement of 30
royalties as income taxes b 32 48
IFRS 3 / AASB 3 Reinstatement of 388
goodwill c 354 389
IAS 10 / AASB 110 Reversal of dividend 592
payable d 878 817
IFRS 2 / AASB 2 Equity based 2
compensation payments to employees - e 16 10
tax effect
IFRS 3 / AASB 3 Business combinations -
- WMC acquisition c (54) -
Net equity in accordance with IFRS 14 743
17 916 15 423
Overall net increase in equity under 363
IFRS 427 655
Reconciliation of net equity - Australian GAAP
Note As at As at As at
30 June 31 1 July
2005 December 2004
2004
US$M US$M US$M
Net equity as previously reported 18 364 15 425
under Australian GAAP 15 862
IAS 19 / AASB 119 Post-retirement (527)
pension obligations - pre tax a (650) (627)
IAS 19 / AASB 119 Post-retirement 135
pension obligations - deferred tax a 158 164
effect
IAS 19 / AASB 119 Post-retirement (76)
medical benefits - pre tax a (111) (101)
IAS 19 / AASB 119 Post-retirement 21
medical benefits - deferred tax effect a 30 28
IAS 12 / AASB 112 Deferred income tax (267)
accounting b 36 17
IAS 12 / AASB 112 Remeasurement of 30
royalties as income taxes b 32 48
IFRS 3 / AASB 3 Reinstatement of -
goodwill c 41 22
IFRS 2 / AASB 2 Equity based 2
compensation payments to employees - e 16 10
tax effect
IFRS 3 / AASB 3 Business combinations -
- WMC acquisition c - -
Net equity in accordance with IFRS 14 743
17 916 15 423
Overall net increase / (decrease) in (682)
equity under IFRS (448) (439)
The following table presents a summary of the impact of IFRS on investments in
jointly controlled entities as at 30 June 2005, 31 December 2004 and 1 July
2004.
Reconciliation of investments in jointly controlled entities - UK and Australian
GAAP
Note As at As at As at
30 June 31 1 July
2005 December 2004
2004
US$M US$M US$M
Investments in jointly controlled entities
as previously reported under UK and
Australian GAAP 1 525 1 501 1 369
Impact on investments in jointly
controlled entities of adjustments to
reclassify assets and liabilities
previously accounted for by proportional
consolidation:
Current assets 623 697 507
Non-current assets 2 687 2 518 2 425
Current liabilities (374) (515) (505)
Non-current liabilities (1 184) (1 146) (1 196)
Increase in investments in jointly
controlled entities in applying the 1 231
equity method of accounting f 1 752 1 554
Other IFRS adjustments (13) (10) (7)
Investments in jointly controlled 3 264 3 045 2 593
entities in accordance with IFRS
15 IFRS transition continued
The following tables present a summary of the impact of IFRS on profit after tax
for the year ended 30 June 2005 and 31 December 2004.
Reconciliation of profit after tax - UK GAAP
Note Half year Year
ended ended
31 December 30 June
2004 2005
US$M US$M
Net Profit after tax as previously
reported under UK GAAP 2 924 6 630
Pre Tax IFRS adjustments:
IAS 19 / AASB 119 Post-retirement medical
and pension obligations a (56) (8)
IAS 12 / AASB 112 Deferred tax effects (6)
within jointly controlled entities b (3)
IFRS 3 / AASB 3 Reversal of amortisation
of goodwill c 1 2
IFRS 2 / AASB 2 Equity based compensation
payments to employees e 22 56
Adjustment to goodwill included in the
net book value of the disposed Chrome
operations c - 31
IFRS 3 / AASB 3 Business combinations -
WMC acquisition c - (54)
IAS 31 / AASB 131 Reclassification of (102) (197)
jointly controlled entity tax expense to
profit before tax - previously equity
accounted f
IAS 31 / AASB 131 Reclassification of (115) (230)
jointly controlled entity tax expense to
profit before tax - previously
proportionately consolidated f
IAS 12 / AASB 112 Deferred tax on the
disposed Chrome operations b - 3
IAS 12 / AASB 112 Reclassification of 603
royalties which are accounted for as g 375
income taxes
Other - (1)
Tax IFRS adjustments:
IAS 12 / AASB 112 Withholding and
repatriation taxes b (2) (10)
IAS 12 / AASB 112 Additional foreign
exchange variations b 109 (40)
IAS 12 / AASB 112 Non-tax depreciable
items now tax-effected b 18 31
IAS 12 / AASB 112 Tax base resets under
Australian tax consolidations b 14 17
IFRS 2 / AASB 2 Equity based compensation
payments to employees e (5) (12)
IAS 31 / AASB 131 Reclassification of 102 197
jointly controlled entity tax expense to
profit before tax - previously equity
accounted f
IAS 31 / AASB 131 Reclassification of 115 230
jointly controlled entity tax expense to
profit before tax - previously
proportionately consolidated f
IAS 19 / AASB 119 Post-retirement medical
and pension benefits - tax impact
a 17 3
IAS 12 / AASB 112 Reclassification of
royalties which are accounted for as
income taxes g (375) (603)
IAS 12 / AASB 112 Remeasurement of
royalties as income taxes g 18 2
Other 7 (16)
Net profit after tax in accordance with
IFRS 3 064 6 628
Reconciliation of profit after tax - Australian GAAP
Note Half year Year
ended ended
31 December 30 June
2004 2005
US$M US$M
Net Profit after tax as previously reported
under Australian GAAP 2 748 6 241
Pre Tax IFRS adjustments:
IAS 19 / AASB 119 Post-retirement medical (8)
and pension obligations a (56)
IAS 12 / AASB 112 Deferred tax effects
within jointly controlled entities b (3) (6)
IFRS 3 / AASB 3 Reversal of amortization of
goodwill c 22 44
IFRS 2 / AASB 2 Equity based compensation
payments to employees e 22 56
Adjustment to goodwill included in the net
book value of the disposed Chrome
operations c - (3)
IFRS 3 / AASB 3 Business combinations - WMC
acquisition c - -
IAS 31 / AASB 131 Reclassification of (115) (230)
jointly controlled entity tax expense to
profit before tax - previously
proportionately consolidated f
IAS 12 / AASB 112 Deferred tax on the
disposed Chrome operations b - 3
IAS 12 / AASB 112 Reclassification of
royalties which are accounted for as income
taxes g 375 603
Tax IFRS adjustments:
IAS 12 / AASB 112 Recognition of prior year
tax losses b 175 350
IAS 12 / AASB 112 Withholding and
repatriation taxes b (2) (10)
IAS 12 / AASB 112 Additional foreign
exchange variations b 103 (46)
IAS 12 / AASB 112 Non-tax depreciable items
now tax-effected b 18 31
IFRS 2 / AASB 2 Equity based compensation
payments to employees e (5) (12)
IAS 31 / AASB 131 Reclassification of 115 230
jointly controlled entity tax expense to
profit before tax - previously
proportionately consolidated f
IAS 19 / AASB 119 Post-retirement medical
and pension benefits - tax impact a 17 3
IAS 12 / AASB 112 Reclassification of
royalties which are accounted for as income
taxes g (375) (603)
IAS 12 / AASB 112 Remeasurement of
royalties as income taxes g 18 2
Other 7 (17)
Net profit after tax in accordance with
IFRS 3 064 6 628
15 IFRS transition continued
a Post-retirement and medical benefits (IAS 19 / AASB 119 Employee Benefits)
Under IFRS, defined benefit pension plan and medical benefit plan arrangements
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 is subject to changes in value that are more volatile than changes in
assets and liabilities that were recognised under BHP Billiton Group"s previous
policy, which was based on the UK Statement of Accounting Practice (SSAP) 24
`Accounting for Pension Costs".
Under SSAP 24, the cost of providing pensions was charged to profit and loss so
as to allocate the cost systematically over the employees" service lives on the
basis of independent actuarial advice. A pension liability or asset was
consequently recognised in the balance sheet to the extent that the
contributions payable either lagged or preceded expense recognition.
b Deferred Tax (IAS 12 / AASB 112 Income Taxes)
On transition to IFRS, the balance sheet liability method of tax effect
accounting was adopted, rather than the income statement liability method
applied under previous BHP Billiton Group policy. This balance sheet method
recognises deferred tax assets and liabilities on temporary 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 gives 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. IFRS requires deferred tax to be recognised on items which do not
have a tax base, such as certain mineral rights and fair value adjustments on
acquisitions, and for tax on unremitted earnings from subsidiaries and joint
ventures except to the extent that the group can control the timing of
distributions and those distributions are not probable in the foreseeable
future. In addition, royalty arrangements which are in the nature of income tax
have been measured and presented as income tax in accordance with IAS 12 / AASB
112 deferred tax accounting principles. The impact on deferred tax balances of
adopting IAS 12 / AASB 112, other than the tax effect of other IFRS adjustments,
is as follows:
30 June 31 Dec 2004 1 Jul 2004
2005
UK GAAP to IFRS Tax asset / Tax asset / Tax asset /
(provision) (provision) (provision)
US$M US$M US$M
Deferred tax on non
depreciable assets
acquired in business
combinations (309) (316) (321)
Tax base resets under
Australian tax
consolidations 188 185 165
Foreign exchange
movements - tax base
of non-monetary assets 434 613 216
Foreign exchange
movements - USD debt (516) (543) (255)
Withholding taxes (10) (2) -
Adoption of IAS 12 to
jointly controlled
entities (13) (10) (7)
Remeasurement of
royalties as income
taxes 32 48 30
Decrease / (increase)
in net deferred tax
liability (194) (25) (172)
30 June 31 Dec 2004 1 Jul 2004
2005
Australian GAAP to Tax asset / Tax asset / Tax asset /
IFRS (provision) (provision) (provision)
US$M US$M US$M
Deferred tax on non
depreciable assets
acquired in business
combinations (309) (316) (321)
Foreign exchange
movements - tax base
of non-monetary assets 434 613 216
Foreign exchange
movements - USD debt (516) (543) (255)
Withholding taxes (10) (2) -
Adoption of IAS 12 to
jointly controlled
entities (13) (10) (7)
Remeasurement of
royalties as income
taxes 32 48 30
Recognition of tax
losses 450 275 100
Decrease / (increase)
in net deferred tax
liability 68 65 (237)
c Goodwill and business combinations (IFRS 3 / AASB 3 Business Combinations)
IFRS requires impairment assessments of goodwill, whereas both previous UK and
Australian GAAP permitted / required the amortisation of goodwill. Business
combinations undertaken after the date of transition to IFRS (1 July 2004) must
be accounted for in accordance with IFRS. The acquisition of WMC Resources Ltd
was effective 3 June 2005. Differences in accounting for the acquisition exist
between UK GAAP and IFRS with respect to the measurement of fair value of
inventory and the recognition of deferred tax liabilities, and between
Australian GAAP and IFRS with respect to deferred tax assets attributable to
unused tax losses.
Under previous UK GAAP goodwill existing prior to 1998 was classified as a
reduction of retained earnings. In order to maintain consistency in the IFRS
treatment of goodwill in the DLC structure, such goodwill has been reclassified
on transition as an asset in the balance sheet. The reclassification of
goodwill was required in order to maintain the accounting for past business
combinations consistent with the previous basis of accounting applied by the
Group under previous Australian GAAP.
d Dividend payable (IAS 10 / AASB 110 Events after the Balance Sheet Date)
IFRS does not permit the recognition of dividends payable as a liability until
the dividend has been formally declared by the Directors. Under previous UK
GAAP, dividends payable were recognised as a liability in the balance sheet at
balance date, despite the fact they were declared subsequent to balance date.
e Equity based compensation (IFRS 2 / AASB 2 Share-based Payment)
Under IFRS the cost of employee compensation provided in the form of equity-
based compensation (including shares and options) is measured based on the fair
value of those instruments rather than their intrinsic value as recognised under
previous BHP Billiton Group policy.
f Joint ventures (IAS 31 / AASB 131 Interests in Joint Ventures)
Under IFRS as implemented in Australia, all joint ventures that are constituted
as a legal entity are accounted for using the equity method. Under both previous
UK and Australian GAAP, the BHP Billiton Group"s interests in the Escondida,
Mozal and Valesul joint ventures were accounted for by proportional
consolidation. As each of these joint ventures operates through an incorporated
entity, IFRS classifies them as jointly controlled entities and the Australian
version of IFRS mandates the use of the equity method of accounting,
notwithstanding that in substance none of the entities operate as independent
business entities. The change to single line equity accounting for jointly
controlled entities does not impact net profit or net equity, however, as
demonstrated in the schedules above, the amounts of profit before tax, income
tax expense, investments in jointly controlled entities and other balance sheet
and income statement line items are significantly affected.
15 IFRS transition continued
g Royalty related taxation (IAS 12 / AASB 112 Income Taxes)
Under IFRS, royalties and resource rent taxes are treated as taxation
arrangements when they have the characteristics of a tax. For such
arrangements, current and deferred tax is provided on the same basis as for
other forms of taxation. Under previous UK and Australian GAAP, such taxes were
included in operating costs, and in some cases, were not calculated in
accordance with deferred tax principles.
Material Adjustments to Cash Flow
The use of the equity method of accounting under IFRS for the Group"s interests
in the Escondida, Mozal and Valesul jointly controlled entities, as compared to
proportional consolidation under previous UK and Australian GAAP, has
corresponding impacts on the Cash Flow Statement. Under IFRS, amounts included
in dividends received from these jointly controlled entities were previously
included elsewhere in cash flows related to operating activities. In addition
capital expenditure and debt repayments for these joint ventures are now
excluded from the Group"s investing and financing cash flows.
The presentation of the Cash Flow Statement is consistent with previous
Australian GAAP, however compared to UK GAAP, the cash flows have been
reclassified as operating, investing and financing.
16 Dual Listed Companies Structure and Basis of Preparation of Interim Financial
Statements
Dual Listed Companies Structure
On 29 June 2001, BHP Billiton Plc (previously known as Billiton Plc), a UK
listed company, and BHP Billiton Limited (previously known as BHP Limited), an
Australian 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 Plc and its subsidiaries (the
BHP Billiton Plc Group) and BHP Billiton Limited and its subsidiaries (the BHP
Billiton Limited Group) operate together as a single economic entity (the BHP
Billiton Group), with neither assuming a dominant role. The consolidated
financial statements of BHP Billiton therefore include those of BHP Billiton
Plc, BHP Billiton Limited and their respective subsidiary companies.
The DLC merger was accounted for using the merger method of accounting. The
nature of the DLC merger has resulted in the inclusion of amounts attributable
to the shareholders of both BHP Billiton Plc and BHP Billiton Limited in capital
and reserves on the balance sheet, and in attributable profit. Further details
on the DLC structure are included in the BHP Billiton Annual Report 2005.
Basis of Preparation
This general purpose condensed interim financial report for the six months ended
31 December 2005 has been prepared in accordance with IAS 34 / AASB 134 "Interim
Financial Reporting". This includes:
* the relevant requirements of Australian Accounting standards (that is,
International Financial Reporting Standards (IFRS) as adopted by the Australian
Accounting Standards Board) and interpretations effective as of 31 December
2005;
* IFRSs and interpretations as adopted by the European Union (EU) as of 31
December 2005; and
* those standards and interpretations adopted early as described below.
The above are collectively referred to as "IFRS" in this report.
The comparative information has also been prepared on this basis, with the
exception of certain items, details of which are given below, for which
comparative information has not been restated. The comparative figures for the
financial year ended 30 June 2005 are not the statutory accounts of BHP Billiton
Plc for that financial year. Those accounts, which were prepared under UK
Generally Accepted Accounting Principles (GAAP), have been reported on by the
company"s auditors and delivered to the registrar of companies. The report of
the auditors was unqualified and did not contain statements under section 237(2)
or (3) of the Companies Act 1985.
This is the BHP Billiton Group"s first IFRS interim financial report for part of
the period covered by the first IFRS annual financial report. The interim
financial report does not include all of the information required for a full
annual financial report. The interim financial report is to be read in
conjunction with the most recent annual financial report; however, the basis of
preparation is different to that of the most recent annual financial report due
to the first time adoption of IFRS. This report must also be read in
conjunction with any public announcements of BHP Billiton made under its
continuous disclosure obligations.
An explanation of how the transition to IFRS has affected the reported financial
position and financial performance of the BHP Billiton Group is provided in note
15. This note includes reconciliations of equity and profit for comparative
periods previously reported under UK GAAP and Australian GAAP to those amounts
reported under IFRS.
This interim financial report has been prepared on the basis of IFRSs in issue
that are effective, or available for early adoption at the BHP Billiton Group"s
first IFRS annual reporting date, 30 June 2006. Based on these IFRSs, the
directors have made assumptions about the accounting policies expected to be
adopted when the first IFRS annual financial report is prepared for the year
ending 30 June 2006. The BHP Billiton Group has elected to early adopt all
Australian Accounting Standards, IFRSs as adopted by the EU and interpretations
that have commencement dates later than the BHP Billiton Group"s IFRS transition
date of 1 July 2004 and which permit early adoption, except for IFRS 7 / AASB 7
"Financial Instruments: Disclosures", and IFRIC 4 "Determining Whether an
Arrangement Contains a Lease". The decision to early adopt those standards and
interpretations ensures that policy elections described below, including IFRS
transition exemptions, are available. The principal standards and
interpretations that have been early adopted are:
16 Dual Listed Companies Structure and Basis of Preparation of Interim Financial
Statements continued
* IFRS 6 / AASB 6 "Exploration for and Evaluation of Mineral Resources"
* Revised IAS 19 / AASB 119 "Employee Benefits"
* International Financial Reporting Interpretations Committee (IFRIC)
pronouncement 5 / Urgent Issues Group (UIG) Interpretation 5 "Rights to
Interests arising from Decommissioning, Restoration and Environmental
Rehabilitation Funds"
IFRS 1 / AASB 1, which governs the first time adoption of IFRSs, in general
requires accounting policies to be applied retrospectively in order to determine
an opening balance sheet at BHP Billiton"s IFRS transition date of 1 July 2004,
and allows certain exemptions on the transition to IFRS which BHP Billiton has
elected to apply. Those elections considered significant to BHP Billiton include
decisions to:
* not restate previous mergers or acquisitions and the accounting thereof;
* measure property, plant and equipment at deemed cost, being the carrying value
of property, plant and equipment immediately prior to the date of transition,
with no adjustment made to fair value;
* not apply the recognition and measurement requirements of IFRS 2 /AASB 2
"Share-based Payment" to equity instruments granted before 7 November 2002;
* recognise the cumulative effect of actuarial gains and losses on defined
benefit employee schemes in retained earnings as at the transition date; and
* transfer all foreign currency translation differences, previously held in
reserves, to retained earnings at the transition date.
In addition, BHP Billiton has applied the exemption available under IFRS 1 /
AASB 1 whereby IAS 32 / AASB 132 "Financial Instruments: Disclosure and
Presentation" and IAS 39 / AASB 139 "Financial Instruments: Recognition and
Measurement" shall apply from 1 July 2005 and not for the year ended 30 June
2005. Accordingly, transitional adjustments in respect of IAS 32 / AASB 132 and
IAS 39 / AASB 139 have been recorded against retained profits and reserves, as
applicable, at 1 July 2005.
Furthermore, the BHP Billiton Group"s DLC structure results in two parent
entities with their own statutory reporting obligations, one in the UK and the
other in Australia. While the UK and Australia are transitioning to IFRS-based
financial reporting regimes in the same timeframe, the DLC structure creates
unique IFRS implementation issues, including:
(i)in the UK, listed groups are required to comply with IFRSs as adopted by the
EC; there is a risk that IFRS as adopted by the EC at 30 June 2006 may not be
consistent with IFRS applicable in Australia;
(ii)the Australian Accounting Standards Board has approved standards based on
IFRSs, some of which mandate particular policies that are optional (and not
applied uniformly by other entities) in the UK; and
(iii)continued development and interpretation of IFRSs prior to 30 June 2006
that could affect the ultimate difference between previous reporting frameworks
and IFRS applicable in each jurisdiction.
The regulatory bodies that promulgate IFRS and its country-specific
implementations have significant ongoing projects that could affect the ultimate
differences between Australian GAAP, UK GAAP and IFRS and their impact on the
BHP Billiton Group"s financial statements.
Accordingly, the basis of preparation and accounting policies may require
adjustment before the Group issues its first complete set of IFRS financial
statements for the year ending 30 June 2006.
Basis of measurement
The financial report is drawn up on the basis of historical cost principles,
except for derivative financial instruments and investments held for trading or
available for sale, which are measured at fair value.
Currency of presentation
All amounts are expressed in millions of US dollars unless otherwise stated. The
BHP Billiton Group"s presentation currency and the functional currency of the
majority of its operations is US dollars as this is the principal currency of
the economic environments in which they operate.
17 Accounting Policies
Principles of consolidation
The financial report of the BHP Billiton Group includes the consolidation of BHP
Billiton Limited, BHP Billiton Plc and their respective subsidiaries.
Subsidiaries are entities controlled by either parent entity. Control exists
where either parent entity has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. Subsidiaries
are included in the consolidated financial report from the date control
commences until the date control ceases. Where the BHP Billiton Group"s
interest is less than 100 per cent, the interest attributable to outside
shareholders is reflected in minority interests. The effects of all
transactions between entities within the BHP Billiton Group have been
eliminated.
Intangible assets
Amounts paid for the acquisition of identifiable (patents, trademarks and
licences) intangible assets are capitalised at the fair value of consideration
paid. Identifiable intangible assets with a finite life are amortised on a
straight-line basis over their expected useful life. The BHP Billiton Group has
no identifiable intangible assets for which the expected useful life is
indefinite. Where the fair value of the consideration paid for a business
acquisition exceeds the fair value of the identifiable assets and liabilities
acquired, the difference is treated as goodwill. Goodwill is not amortised,
however the carrying amount of all goodwill and identifiable intangible assets
is assessed against its recoverable amount as explained below under `Recoverable
amounts of non-current assets".
On the subsequent disposal or termination of a previously acquired business, any
remaining balance of associated goodwill and identifiable intangible assets is
included in the determination of the profit or loss on disposal / termination.
Investments accounted for using the equity method
Investments in jointly controlled entities and associated entities are accounted
for using the equity method of accounting. Under the equity method, the cost of
the investment in each jointly controlled entity and associated entity is
adjusted by the BHP Billiton Group"s proportionate share of the entity"s net
profit or loss.
Joint ventures
The BHP Billiton Group undertakes a number of business activities through joint
ventures. Joint ventures are established through contractual arrangements that
require the unanimous consent of each of the venturers regarding the strategic
financial and operating policies of the venture (joint control). The BHP
Billiton Group"s joint ventures are of two types:
Jointly controlled entities
A jointly controlled entity is a corporation, partnership or other entity, in
which each venturer holds an interest. A jointly controlled entity operates in
the same way as other entities, controlling the assets of the joint venture,
earning its own income and incurring its own liabilities and expenses.
Interests in jointly controlled entities are accounted for using the equity
method.
Jointly controlled assets and operations
The BHP Billiton Group has certain contractual arrangements with other
participants to engage in joint activities that do not give rise to a jointly
controlled entity. These arrangements involve the joint ownership of assets
dedicated to the purposes of each venture. These contractual arrangements do
not create a jointly controlled entity due to the fact that the joint venture
operates under the policies of the venturers who directly derive the benefits of
operation of their jointly owned assets, rather than deriving returns from an
interest in a separate entity carrying on its own trade or business.
The financial report of the BHP Billiton Group includes its share of the assets
in such joint ventures, together with the liabilities, revenues and expenses
arising jointly or otherwise from those operations. All such amounts are
measured in accordance with the terms of each arrangement, which is usually in
proportion to the BHP Billiton Group"s interest in the jointly owned assets.
17 Accounting Policies continued
Foreign currencies
The BHP Billiton Group"s reporting currency and the functional currency of the
majority of its operations is US dollars, as this is the principal currency of
the economic environments in which they operate.
Transactions denominated in foreign currencies (currencies other than the
functional currency of an operation) are recorded using the exchange rate ruling
at the date of the underlying transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at year end and the gains or losses on retranslation are included in the
Income Statement, with the exception of foreign exchange gains or losses on
foreign currency provisions for site restoration and rehabilitation which are
capitalised in property, plant and equipment, and foreign exchange gains and
losses on foreign currency borrowings designated as a hedge of the net assets of
foreign operations.
The Income Statement of subsidiaries and joint ventures which have functional
currencies other than US dollars are translated to US dollars at the date of the
transaction. Assets and liabilities are translated at exchange rates prevailing
at year end. Exchange variations resulting from the retranslation at closing
rate of the net investment in such subsidiaries and joint ventures, together
with differences between their Income Statement translated at actual and closing
rates, are recorded as a movement in the exchange fluctuation account. Exchange
differences arising on long-term foreign currency borrowings used to finance
such investments, together with any related income tax effects, are also
recorded as a movement in the exchange fluctuation account. The balance of the
exchange fluctuation account relating to a foreign operation that is disposed
of, or partially disposed of, is recognised in the Income Statement in the year
of disposal.
Share Based Payments
For share based payments, the fair value at grant date of equity settled share
awards made by the BHP Billiton Group is charged to profit over the period for
which the benefits of employee services are expected to be derived. The
corresponding accrued employee entitlement is recorded in the Employee Share
Awards reserve. The fair value of awards is calculated using an option pricing
model which considers the following factors:
* Exercise price
* Expected life of the award
* Current market price of the underlying shares
* Expected volatility
* Expected dividends
* Risk-free interest rate
* Market based performance hurdles
Where awards are forfeited because non-market based vesting conditions are not
satisfied, the expense previously recognised is proportionately reversed. Where
awards are satisfied by on-market purchases of BHP Billiton Group shares, the
cost of acquiring the shares is carried in the Employee Share Awards reserve,
and any difference between that amount and the remuneration expense recognised
is taken to retained earnings. The tax effect of awards granted is recognised in
income tax expense, except to the extent that the total tax deductions are
expected to exceed the cumulative remuneration expense. In this situation, the
excess of the associated current or deferred tax is recognised in equity as part
of the Employee Share Awards reserve.
17 Accounting Policies continued
Sales revenue
Revenue from the sale of goods and disposal of other assets is recognised when
persuasive evidence, usually in the form of an executed sales agreement, of an
arrangement exists indicating there has been a transfer of risks and rewards to
the customer, no further work or processing is required by the BHP Billiton
Group, the quantity and quality of the goods has been determined with reasonable
accuracy, the price is fixed or determinable, and collectibility is reasonably
assured. This is generally when title passes.
In the majority of sales for most commodities, sales agreements specify that
title passes on the bill of lading date which is the date the commodity is
delivered to the shipping agent. Revenue is recognised on
the bill of lading date. For certain sales (principally coal sales to adjoining
power stations and diamond sales), title passes and revenue is recognised when
the goods have been delivered.
In cases where the terms of the executed sales agreement allows for an
adjustment to the sales price based on a survey of the goods by the customer
(for instance an assay for mineral content), recognition of the sales revenue is
based on the most recently determined estimate of product specifications.
In the case of certain exchange traded commodities, the sales price is
determined on a provisional basis at the date of sale; adjustments to the sales
price occur based on movements in quoted market prices up to the date of final
pricing. Revenue on provisionally priced sales is recognised based on the
estimated fair value of the total consideration receivable. Fair value of the
final sales price adjustment is estimated based on the lower of current and
forward market prices.
Revenue is not reduced for royalties and other taxes payable from production.
The BHP Billiton Group separately classifies sales of Group production from
sales of third party products due to the significant difference in profit margin
earned on these sales.
Exploration, evaluation and development expenditure
Development expenditure, including deferred overburden removal costs, for both
minerals and petroleum activities is capitalised.
In respect of minerals activities, exploration and evaluation expenditure is
predominantly charged to the Income Statement as incurred. In limited
circumstances, such expenditure is capitalised when:
* it is expected that the expenditure will be recouped by future exploitation or
sale; or
* substantial exploration and evaluation activities have identified a mineral
resource with sufficient certainty that permits a reasonable assessment of the
existence of commercially recoverable reserves.
In respect of petroleum activities, exploration and evaluation expenditure is
accounted for on an area-of-interest basis in accordance with the successful
efforts method where:
* significant exploration licence acquisition costs are capitalised and
amortised over the term of the licence, except for costs in new unexplored areas
which are expensed as incurred;
* administrative costs that are not directed to a specific area-of-interest are
expensed in the year in which they are incurred;
* all other exploration and evaluation expenditure is charged against the Income
Statement except where the expenditure relates to an area-of-interest and it is
expected that the expenditure will be recouped by future exploitation or sale,
or, at Balance Sheet date exploration and evaluation activities have not reached
a stage which permits a reasonable assessment of the existence of commercially
recoverable reserves, in which case the expenditure is capitalised;
* exploratory wells that find oil or gas in an area requiring major capital
expenditure before production can begin are continually evaluated to assure that
commercial quantities of reserves have been found or that additional exploration
work is underway or planned. To the extent it is considered that the relevant
expenditure will not be recovered, it is written off; and
* when proved reserves of oil or gas are determined and development is
sanctioned and completed, the relevant expenditure, together with related
development expenditure, is amortised on a unit of production basis.
17 Accounting Policies continued
Deferred overburden removal costs
Stripping ratios are a function of the quantity of ore mined compared with the
quantity of overburden, or waste, required to be removed to mine the ore.
Deferral of costs to the Balance Sheet is made, where appropriate, when actual
stripping ratios vary from average stripping ratios. Deferral of costs to the
Balance Sheet is not made when the waste to ore ratio is expected to be
consistent throughout the life of the mine.
Costs which have previously been deferred to the Balance Sheet (deferred
overburden removal costs) are included in the Income Statement on a unit of
production basis utilising average stripping ratios. Changes in estimates of
average stripping ratios are accounted for prospectively from the date of the
change.
As it is not possible to separately identify cash inflows relating to deferred
overburden removal costs, such assets are grouped with other assets of a cash
generating unit for the purposes of undertaking impairment assessments, where
necessary, based on future cash flows for the operation as a whole.
Research and development expenditure
Expenditure for research is included in the Income Statement as incurred on the
basis that continuing research is part of the overall cost of being in business.
To the extent that future benefits deriving from development expenditure are
expected beyond reasonable doubt to exceed such expenditure, these costs are
capitalised and amortised over the period of expected benefit.
Finance costs
Finance costs are generally expensed as incurred except where they relate to the
financing of construction or development of qualifying assets requiring a
substantial period of time to prepare for their intended future use. Finance
costs are capitalised up to the date when the asset is ready for its intended
use. The amount of finance costs capitalised (before the effects of income tax)
for the period is determined by applying the interest rate applicable to
appropriate borrowings outstanding during the period to the average amount of
accumulated expenditure for the assets during the period.
Property, plant and equipment
Valuation in financial statements
Property, plant and equipment is recorded at cost.
Recoverable amounts of non-current assets
All non-current assets are reviewed at least annually to determine whether their
carrying amounts require write-down to recoverable amounts. Assets may be
reviewed more regularly if an event or change in circumstances indicates that
the carrying amount of an asset may not be recoverable. If the asset is
determined to be impaired, an impairment loss will be recorded, and the asset
written down, based on the amount by which the asset carrying amount exceeds the
higher of fair value less costs to sell and value in use. Value in use is
determined by discounting expected future cash flows using a risk-adjusted pre-
tax discount rate appropriate to the risks inherent in the asset. Future cash
flows are estimated based on expected production and sales volumes, commodity
prices (considering current and historical prices, price trends and related
factors), recoverable reserves, operating costs, reclamation costs and capital
costs. These estimates are subject to risk and uncertainty; hence there is a
possibility that changes in circumstances will alter these projections, which
may impact the recoverability of these assets.
Disposals
Disposals are taken to account in net profit from continuing operations, except
where they represent the sale or abandonment of a significant business or all of
the assets associated with such a business, and are not considered to be of a
recurring nature, in which case they are treated as significant items.
Mineral rights
Acquired mineral rights are accounted for at cost with provisions made where
impairments in value have occurred. Exploitable mineral rights are capitalised
and depreciated from commencement of production over the production life of the
asset.
17 Accounting Policies continued
Mineral leases
The BHP Billiton Group"s mineral leases are of sufficient duration (or convey a
legal right to renew for sufficient duration) to enable all reserves on the
leased properties to be mined in accordance with current production schedules.
Depreciation of property, plant and equipment
The carrying amounts of property, plant and equipment (including the original
capital expenditure and any subsequent capital expenditure) is depreciated to
its residual value over the useful economic lives of the specific assets
concerned or the life of the mine or lease, if shorter. The major categories of
property, plant and equipment are depreciated on a unit of production and/or
straight-line basis as follows:
* Buildings - 25 to 50 years
* Land - not depreciated
* Plant, machinery and equipment - 4 to 30 years
Mineral rights * Mineral rights - based on the estimated life of reserves
on a unit of production basis
* Exploration, evaluation and - over the life of the proven and probable
development expenditure of reserves on a unit of production basis minerals
assets and other mining assets
* Petroleum interests - over the life of the proved developed oil and gas
reserves on a unit of production basis
* Leasehold land and buildings - over the life of the lease up to a
maximum of 50 years
* Vehicles - 3 to 5 years straight-line
* Capitalised leased assets - up to 50 years or life of lease, whichever
is shorter
* Computer systems - up to 8 years straight-line
Changes in estimates are accounted for over the estimated remaining economic
life or the remaining commercial reserves as applicable.
Leased assets
Assets held under leases which result in the BHP Billiton Group receiving
substantially all the risks and rewards of ownership of the asset (finance
leases) are capitalised at the lower of the fair value of the property, plant
and equipment or the estimated present value of the minimum lease payments.
The corresponding finance lease obligation is included within interest bearing
liabilities. The interest element is allocated to accounting periods during the
lease term to reflect a constant rate of interest on the remaining balance of
the obligation for each accounting period.
Operating lease assets are not capitalised and rental payments are included in
the Income Statement on a straight-line basis over the lease term. Provision is
made for the present value of future operating lease payments in relation to
surplus lease space when it is first determined that the space will be of no
probable future benefit. Operating lease incentives are recognised as a
liability when received and subsequently reduced by allocating lease payments
between rental expense and reduction of the liability.
Inventories
Inventories, including work in progress, are valued at the lower of cost and net
realisable value. Cost is determined primarily on the basis of average costs. In
some cases, the first-in-first-out method or actual cost is used. For processed
inventories, cost is derived on an absorption costing basis. Cost comprises
cost of purchasing raw materials and cost of production, including attributable
mining and manufacturing overheads.
17 Accounting Policies continued
Taxation
Taxation on the profit or loss for the year comprises current and deferred tax.
Taxation is recognised in the Income Statement except to the extent that it
relates to items recognised directly in equity, in which case the tax amounts
are recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using rates enacted or substantively enacted at the year end, and includes any
adjustment to tax payable in respect of previous years. It further excludes
items that are never taxable or deductible.
Deferred tax is provided using the balance sheet liability method, providing for
the tax effect of temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts used for tax
assessment or deduction purposes. Where an asset has no deductible or
depreciable amount for income tax purposes, but has a deductible amount for
capital gains tax purposes, that amount is included in the determination of
temporary differences. The tax effect of certain temporary differences is not
recognised; principally with respect to goodwill; temporary differences arising
on the initial recognition of assets or liabilities (other than those arising in
a business combination or in a manner that initially impacted accounting or
taxable profit); and temporary differences relating to investments in
subsidiaries, joint ventures and associates to the extent that the BHP Billiton
Group is able to control the reversal of the temporary difference and the
temporary difference is not expected to reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner and timing of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at period end.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised. Deferred tax assets are reviewed at each balance sheet date and
amended to the extent that it is no longer probable that the related tax benefit
will be realised. Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation authority and the BHP
Billiton Group has both the right and the intention to settle its current tax
assets and liabilities on a net or simultaneous basis.
Royalties and resource rent taxes are treated as taxation arrangements when they
have the characteristics of a tax. This is considered to be the case when they
are imposed under Government authority and the amount payable is calculated by
reference to revenue derived (net of any allowable deductions) after adjustment
for items comprising temporary differences. For such arrangements, current and
deferred tax is provided on the same basis as described above for other forms of
taxation. Obligations arising from royalty arrangements that do not satisfy
these criteria are recognised as current provisions and included in expenses.
Provision for employee benefits
Provision is made in the financial statements for all employee benefits,
including on-costs. In relation to industry-based long service leave funds, the
BHP Billiton Group"s share of receivables and payables, including obligations
for funding shortfalls, have been recognised.
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and accumulating sick leave expected to be settled within 12 months of the
reporting date are recognised in other creditors or provision for employee
benefits in respect of employees" services up to the reporting date and are
measured at the amounts expected to be paid when the liabilities are settled.
Liabilities for non-accumulating sick leave are recognised when the leave is
taken and measured at the rates paid or payable.
The liability for long service leave expected to be settled within 12 months of
the reporting date is recognised in the provision for employee benefits and is
measured in accordance with annual leave above. The liability for long service
leave expected to be settled more than 12 months from the reporting date is
recognised in the provision for employee benefits and measured as the present
value of expected future payments to be made in respect of services provided by
employees up to the reporting date. Consideration is given to expected future
wage and salary levels, experience of employee departures and periods of
17 Accounting Policies continued
service. Expected future payments are discounted using market yields at the
reporting date on national government bonds with terms to maturity and currency
that match, as closely as possible, the estimated future cash outflows.
Superannuation, pensions and other post-retirement benefits
The BHP Billiton Group operates or participates in a number of pension
(including superannuation) schemes throughout the world. The funding of the
schemes complies with local regulations. The assets of the schemes are generally
held separately from those of the BHP Billiton Group and are administered by
trustees or management boards. For schemes of the defined-contribution type or
those operated on an industry-wide basis, where it is not possible to identify
assets attributable to the participation by the BHP Billiton Group"s employees,
the pension charge is calculated on the basis of contributions payable.
For defined benefit schemes, the cost of providing pensions is charged to the
Income Statement so as to recognise current and past service costs, interest
cost on defined benefit obligations, and the effect of any curtailments or
settlements, net of expected returns on plan assets. Actuarial gains and losses
are recognised in full directly in equity. An asset or liability is consequently
recognised in the Balance Sheet based on the present value of defined benefit
obligations, any unrecognised past service costs and the fair value of plan
assets.
Certain BHP Billiton Group companies provide post-retirement medical benefits to
qualifying retirees. In some cases the benefits are provided through medical
care schemes to which the company, the employees, the retirees and covered
family members contribute. In some schemes, there is no funding of the benefits
before retirement. These schemes are recognised on the same basis as described
for defined benefit pension schemes.
Provision for restoration and rehabilitation
BHP Billiton Group companies are generally required to decommission and
rehabilitate mines, oil and gas facilities and processing sites at the end of
their producing lives to a condition acceptable to the relevant authorities and
consistent with the BHP Billiton Group"s environmental policies.
The expected cost of any approved decommissioning or rehabilitation programme,
discounted to its net present value, is provided when the related environmental
disturbance occurs, based on the BHP Billiton Group"s interpretation of
environmental and regulatory requirements and its own environmental policies
where these are more stringent and this has created an obligation on the BHP
Billiton Group. The cost is capitalised where it gives rise to future benefits,
whether the rehabilitation activity is expected to occur over the life of the
operation or at the time of closure. The capitalised cost is amortised over the
life of the operation and the increase in the net present value of the provision
for the expected cost is included in financial expenses. Expected
decommissioning and rehabilitation costs are based on the discounted value of
the estimated future cost of detailed plans prepared for each site. Where there
is a change in the expected decommissioning and restoration costs, an adjustment
is recorded against the carrying value of the provision and any related asset,
and the effect is then recognised in the Income Statement on a prospective basis
over the remaining life of the operation.
The provisions referred to above do not include any amounts related to
remediation costs associated with unforeseen circumstances. Such costs are
recognised when environmental contamination as a result of oil and chemical
spills, seepage or other unforseen events gives rise to a loss which is probable
and reliably estimable.
The cost of other activities to prevent and control pollution and to
rehabilitate the environment that is not included in provisions is charged to
the Income Statement as incurred.
17 Accounting Policies continued
Financial instruments
The BHP Billiton Group adopted IAS 39 / AASB 139 "Financial Instruments:
Recognition and Measurement" from 1 July 2005. Adjustments have been made to
the opening balance sheet at 1 July 2005 to reflect this change in accounting
policy for the adoption of IAS 39 / AASB 139; these are shown separately in Note
11 Total equity.
Financial assets other than derivatives are recognised at fair value or
amortised cost in accordance with the requirements of IAS 39 / AASB 139. Where
they are carried at fair value, gains and losses on remeasurement are recognised
directly in equity unless the financial assets have been designated as being
held at fair value through profit, in which case the gains and losses are
recognised directly in the Income Statement. All financial liabilities other
than derivatives are carried at amortised cost.
Derivatives, including those embedded in other contractual arrangements, are
initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured to their fair value. The method of
recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged. The measurement of fair value is based on quoted market prices. Where
no price information is available from a quoted market source, alternative
market mechanisms or recent comparable transactions, fair value is estimated
based on the BHP Billiton Group"s views on relevant future prices, net of
valuation allowances to accommodate liquidity, modelling and other risks
implicit in such estimates.
The BHP Billiton Group"s foreign exchange contracts held for hedging purposes
are generally accounted for as cash flow hedges. Interest rate swaps held for
hedging purposes are generally accounted for as fair value hedges. Derivatives
embedded within other contractual arrangements and commodity based transactions
executed through derivative contracts do not qualify for hedge accounting.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair
value hedges are recorded in the Income Statement, together with any changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognised in equity in the
hedging reserve. The gain or loss relating to the ineffective portion is
recognised immediately in the Income Statement.
Amounts accumulated in equity are recycled in the Income Statement in the
periods when the hedged item affects profit or loss. However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset
(for example, plant and equipment purchases) or a non-financial liability, the
gains and losses previously deferred in equity are transferred from equity and
included in the measurement of the initial cost or carrying amount of the asset
or liability.
When a hedging instrument expires or is sold or terminated, or when a hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in the Income Statement. When a
hedged forecast transaction is no longer expected to occur, the cumulative hedge
gain or loss that was reported in equity is immediately transferred to the
Income Statement.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in
the fair value of any derivative instrument that does not qualify for hedge
accounting are recognised immediately in the Income Statement.
17 Accounting Policies continued
Prior to 1 July 2005, derivative financial instruments were accounted for using
hedge accounting principles within Australian GAAP and UK GAAP whereby
derivatives were matched to the specifically identified commercial risks being
hedged. These matching principles were applied to both realised and unrealised
transactions. Derivatives undertaken as hedges of anticipated transactions were
recognised when such transactions were recognised. Upon recognition of the
underlying transaction, derivatives were valued at the appropriate market spot
rate. When an underlying transaction could no longer be identified, gains or
losses arising from a derivative that had been designated as a hedge of that
transaction would be taken to the Income Statement whether or not such
derivative was terminated. When a hedge was terminated, the deferred gain or
loss that arose prior to termination was:
(a)deferred and included in the measurement of the anticipated transaction when
it occurred; or
(b) taken to the Income Statement where the anticipated transaction was no
longer expected to occur.
The premiums paid on interest rate options and foreign currency put and call
options were included in debtors and were deferred and included in the
settlement of the underlying transaction.
Available for sale and trading investments
Available for sale and trading investments are measured at fair value. Gains
and losses on the re-measurement of trading investments are recognised directly
in the Income Statement. Gains and losses on the re-measurement of available
for sale investments are recognised directly in equity, and subsequently
recognised in the Income Statement when realised by sale or redemption, or when
a reduction in fair value is judged to represent an impairment.
Prior to 1 July 2005, available for sale investments were classified as fixed
asset investments and, other than for joint ventures and associates, were stated
individually at cost less provisions for impairments. Trading investments were
classified as current asset investments and valued at the lower of cost and net
realisable value. In determining net realisable values, market values were used
in the case of listed investments and Directors" estimates were used in the case
of unlisted investments.
Impact of judgement and estimates
The preparation of the BHP Billiton Group"s financial report requires management
to make judgements and estimates that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial report and the reported revenues and expenses during the
period. On an ongoing basis, management evaluates its judgements and estimates
that impact on the financial report. Management bases its judgements and
estimates on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis of making judgements about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates.
Rounding of amounts
Amounts in this financial report have, unless otherwise indicated, been rounded
to the nearest million dollars.
Exchange rates
The following exchange rates against the US dollar have been applied in the
financial report:
Average Average Average As at As at As at
Half Half Year 31 31 30
year year ended 30 December December June
ended 31 ended 31 June 2005 2004 2005
December December 2005
2005 2004
Australian 0.75 0.73 0.75 0.73 0.78 0.76
dollar (a)
Brazilian real 2.30 2.89 2.73 2.33 2.66 2.36
Canadian 1.19 1.27 1.25 1.16 1.20 1.23
dollar
Chilean peso 540 612 595 514 557 579
Colombian peso 2 297 2 556 2 454 2 287 2 353 2 329
South African 6.52 6.21 6.21 6.33 5.65 6.67
rand
Euro 0.83 0.80 0.79 0.84 0.73 0.83
UK pound 0.57 0.54 0.54 0.58 0.52 0.55
sterling
(a) Displayed as US$ to A$1 based on common convention.
Directors" Report
The Directors present their report together with the interim financial
statements for the half year ended 31 December 2005 and the auditor"s review
report thereon.
REVIEW OF OPERATIONS
A detailed review of the Group"s operations, the results of those operations
during the half year ended 31 December 2005 and likely future developments are
given on pages 1 to 12.
Dividend
Full details of dividends are given on page 24.
Events After End of Half Year
No matters or circumstances have arisen since the end of the half year that have
significantly affected, or may significantly affect, the operations, results of
operations or state of affairs of the BHP Billiton Group in subsequent
accounting periods.
BOARD OF DIRECTORS
The Directors of the Company in office at any time 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 from May 1995 until November 2005
Dr D A Jenkins - a Director since March 2000
Dr J M Schubert - a Director since June 2000
Dr D C Brink - a Director since June 2001 (a Director of Billiton Plc since June
1997)
Lord Renwick of Clifton - a Director from June 2001 until November 2005 (a
Director of Billiton Plc from June 1997)
Mr C W Goodyear - an Executive Director since November 2001
Dr J G Buchanan - a Director since February 2003
Mr M Salamon - an Executive Director since February 2003
Mr C A Cordeiro - a Director since February 2005
Dr E G de Planque - a Director since September 2005
Mr M Kloppers - an Executive Director since January 2006
Mr C J Lynch - an Executive Director since January 2006
AUDITOR"S INDEPENDENCE DECLARATION
KPMG in Australia are the auditors of BHP Billiton Limited. Their auditor"s
independence declaration under Section 307C of the Australian Corporations Act
2001 is set out on page 44.
ROUNDING OF AMOUNTS
BHP Billiton Limited is a company of a kind referred to in Australian Securities
and Investments Commission Class Order No 98/100, dated 10 July 1998. Amounts
in this Directors" Report and financial report have been rounded to the nearest
million dollars in accordance with that class order.
Signed in accordance with a resolution of the Board.
D R Argus
Chairman
Melbourne
15 February 2006
Directors" Declaration
In the opinion of the directors of the BHP Billiton Group:
(a) the financial statements and notes set out on pages 13 to 43, are in
accordance with the Listing Rules of the Financial Services Authority in the
United Kingdom, applicable accounting standards and the Australian Corporations
Act 2001, including giving a true and fair view of the financial position of the
BHP Billiton Group as at 31 December 2005 and of its performance, as represented
by the results of its operations and cash flows for the half-year ended on that
date.
(b) there are reasonable grounds to believe that each of the BHP Billiton Group,
BHP Billiton Limited and BHP Billiton Plc, will be able to pay its debts as and
when they become due and payable.
Signed in accordance with a resolution of the directors.
D R Argus
Chairman
Melbourne
15 February 2006
Auditor"s Independence Declaration
To: the directors of BHP Billiton Limited
I declare that, to the best of my knowledge and belief, in relation to the
review for the half-year ended 31 December 2005 there have been:
(i) no contraventions of the auditor independence requirements as set out in the
Australian Corporations Act 2001 in relation to the review; and
(ii) no contraventions of any applicable code of professional conduct in
relation to the review.
This declaration is in respect of BHP Billiton Limited and the entities
controlled during the period.
KPMG
Peter Nash
Partner
Melbourne
15 February 2006
Independent review report of KPMG Audit Plc to BHP Billiton Plc and KPMG to the
members of BHP Billiton Limited
Scope
KPMG Audit Plc and KPMG have reviewed the financial information of the BHP
Billiton Group for the half year ended 31 December 2005, set out on pages 13 to
43, and KPMG has also reviewed the directors" declaration set out on page 44.
KPMG Audit Plc"s report is made solely to BHP Billiton Plc in accordance with
the terms of KPMG Audit Plc"s engagement to assist BHP Billiton Plc in meeting
the requirements of the Listing Rules of the Financial Services Authority. KPMG
Audit Plc"s 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.
KPMG has performed an independent review of the interim financial report in
order to state whether, on the basis of the procedures described, anything has
come to its attention that would indicate that the interim financial report is
not presented fairly in accordance with Australian Accounting Standard AASB 134
Interim Financial Reporting and other mandatory financial reporting requirements
in Australia and statutory requirements, so as to present a view which is
consistent with our understanding of the group"s financial position, and
performance as represented by the results of its operations and its cash flows
and in order for BHP Billiton Limited to lodge the interim financial report with
the Australian Securities and Investments Commission.
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 financial report:
* in accordance with the Listing Rules of the Financial Services Authority in
the United Kingdom which require that the accounting policies and presentation
applied to the interim figures should be consistent with those applied in
preparing the preceding annual financial statements except where any changes,
and the reasons for them, are disclosed; and
* in accordance with the Australian Corporations Act 2001 including the relevant
reconciling information regarding adjustments required under Australian
Accounting Standard AASB 1 First-Time Adoption of Australian equivalents to
International Financial Reporting Standards.
As disclosed in note 16 to the financial statements, the next annual financial
statements of the group will be prepared in accordance with IFRS as adopted by
the European Union and Australian Accounting Standards. This interim financial
report has been prepared in accordance with IAS 34/AASB 134 Interim Financial
Reporting and the requirements of IFRS 1 First-time Adoption of International
Financial Reporting Standards/AASB 1 First Time Adoption of Australian
Equivalents to International Financial Reporting Standards relevant to interim
financial reports.
The accounting policies that have been adopted in preparing the financial
statements are consistent with those that the Directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with those IFRS as adopted by the European Union and Australian
Accounting Standards.
Review work performed
KPMG Audit Plc conducted its 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.
KPMG conducted its review in accordance with Australian Auditing Standards
applicable to review engagements.
A review consists principally of making enquiries of group 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. A
review is substantially less in scope than an audit performed in accordance with
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 by KPMG Audit Plc
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 2005.
KPMG Audit Plc
Chartered Accountants
London
15 February 2006
Review conclusion by KPMG
Based on our review, which is not an audit, we have not become aware of any
matter that makes us believe that the half year financial report of BHP Billiton
Limited is not in accordance with:
a) the Corporations Act 2001, including:
i) giving a true and fair view of the group"s financial position as at 31
December 2005 and of its performance for the half year ended on that date; and
ii) complying with Australian Accounting Standard AASB 134 Interim Financial
Reporting and the Corporations Regulations 2001; and
b) other mandatory financial reporting requirements in Australia.
KPMG
Peter Nash
Partner
Melbourne
15 February 2006
Date: 15/02/2006 08:58:15 AM Produced by the JSE SENS Department
