| Wed 23 Aug 2006, 8:01 | | BHP Billiton results for the year ended 30 June 20 |
|
BIL
BIBLT
BHP Billiton results for the year ended 30 June 2006
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
23 August 2006
BHP BILLITON RESULTS FOR THE YEAR ENDED 30 JUNE 2006
* Commodity markets remain strong underpinned by supply restrictions and a
generally constructive global economy.
* Annual records for all key earnings measures including Underlying EBITDA up
50% to US$18.1 billion and Underlying EBIT up 54% to US$15.3 billion.
* Attributable profit up 63% to US$10.5 billion, including exceptionals, and up
58% to US$10.2 billion, excluding exceptionals.
* EPS up 66%, including exceptionals, and 60%, excluding exceptionals,
benefiting from recent buy-backs.
* Underlying EBIT margin1 and Return on Capital Employed increased to 44% and
35% respectively.
* Record annual production volumes for aluminium, copper, iron ore, nickel and
natural gas in a strong demand environment.
* Four major growth projects completed and seven major growth projects approved.
23 projects in execution or feasibility, representing US$13.8 billion of
investment.
* Final dividend of 18.5 US cents per share, an increase of 27.6% on last year"s
final dividend. This brings the full year dividend to 36.0 US cents per share,
up 28.6%.
* Further capital return of US$3.0 billion, bringing total for FY2006 to US$5.0
billion.
Year ended 30 June 2006 2005
US$M US$M Change
Revenue together with share of 39,099 31,150 25.5%
jointly controlled entities"
revenue
Underlying EBITDA (2) 18,053 12,036 50.0%
Underlying EBIT (2) (3) 15,277 9,921 54.0%
EBIT - Profit from operations 14,671 9,271 58.2%
Attributable profit 10,450 6,396 63.4%
Attributable profit - excluding 10,154 6,426 58.0%
exceptional items
Net operating cash flow (4) 10,476 8,374 25.1%
Basic earnings per share (US cents) 173.2 104.4 65.9%
Basic earnings per share - 168.2 104.9 60.3%
excluding exceptional items (US
cents)
Underlying EBITDA interest coverage 44.3 51.7 (14.3%)
(times) (2) (5)
Dividend per share (US cents) 36.0 28.0 28.6%
Refer to page 16 for footnotes, including explanations of the non-GAAP measures
used in this announcement.
The above financial results are prepared in accordance with IFRS and are
unaudited. All references to the prior period are to the year ended 30 June
2005.
RESULTS FOR THE YEAR ENDED 30 JUNE 2006
Commentary on the Group Results
Record annual results
Today we are announcing our third consecutive record annual result with
attributable profit of US$10.2 billion before exceptional items. This represents
an increase of 58.0% over last year"s result, with five of our seven Customer
Sector Groups (CSGs) recording significant increases in Underlying EBIT over the
prior year.
Our Underlying EBIT of US$15.3 billion has increased 54.0% over last year and
almost fivefold since our June 2002 results. Over the last five years, the Group
has invested US$15 billion on organic growth projects and acquisitions. This
has resulted in an average volume increase across our key commodities of
approximately 38%. The Company"s global footprint, diverse product range and
visibility to global markets have allowed the Company to invest through the
business cycle in value adding opportunities. This has positioned our business
to take full advantage of the current robust demand and price environment that
underpins these record financial results. Full year operational records were
also accomplished, with record production achieved for five major and two minor
commodities.
Our Underlying EBIT margins increased during the year to 44.4%, from 39.6% in
2005 driven by price and volume increases. Return on Capital Employed remained
very strong at 34.6%. Raw material, contractor and labour costs are all under
pressure but our global procurement and business excellence initiatives are
helping to mitigate these increased costs. Our Business Excellence program has
been invigorated during the year with some good gains being recorded. Management
of cost pressures continues to be a key focus across the Group.
We continue our strategy of delivering value enhancing growth with the
completion of four and approval of seven major growth projects during the year.
The seven new projects have an expected cost of US$5.0 billion (BHP Billiton
share), bringing our current project pipeline to 23 projects with an expected
investment of US$13.8 billion. Despite continued cost and schedule challenges to
the delivery of our project pipeline, we remain confident in the value these
projects will deliver to our shareholders given market fundamentals, the need
for new supply and our stringent approval and monitoring processes.
Preparing for future growth
We are also laying the foundation for future growth via our global exploration
and development program. Our Petroleum exploration program continues to be
successful, in particular in the Gulf of Mexico (US). We also have over 200
minerals exploration and development opportunities ongoing in approximately 35
countries across Asia, Africa, Russia, the Americas and Australasia. Our long
history of successfully operating in both developed and more challenging
jurisdictions together with our proven risk management framework underpins our
ability to move discoveries through to operations.
The exceptional diversity of our businesses by commodity, geography and customer
base underpins the strength of our cash flows and continues to support our
ability to both identify and invest in growth opportunities whilst continuing to
deliver outstanding returns to shareholders in the form of our progressive
dividend policy and other capital management initiatives.
Dividend and Capital Management
The Board today declared a final dividend of 18.5 US cents per share. This
represents an increase of 27.6% over last year"s final dividend of 14.5 US cents
per share. This brings the total dividends for the 2006 financial year to 36.0
US cents per share, an increase of 8.0 US cents per share, or 28.6%, over the
2005 year. Today"s declaration represents our ninth consecutive dividend
increase and means that today"s dividend has increased almost threefold since
the final dividend paid in 2002. We intend to continue with our progressive
dividend policy, with further increases dependent upon the expectations for
future investment opportunities and market conditions.
We are also announcing today a further capital return of US$3.0 billion to
shareholders over the next 18 months through a series of share buy-backs, and it
is yet to be decided the extent to which these will be on or off market. We
expect this will commence with an on-market buy-back in BHP Billiton Plc.
This program brings the total buy-back programs to US$5.0 billion for the year
following the US$2.0 billion capital management program completed in May. Under
that initiative 114.8 million shares, or 1.9% of the issued share capital of the
BHP Billiton Group, was repurchased.
At the conclusion of today"s announced initiative, BHP Billiton will have
returned US$15.5 billion in total to shareholders through capital initiatives
and dividends since June 2001.
The Income Statement
IFRS and Underlying EBIT
BHP Billiton adopted International Financial Reporting Standards (IFRS) for
reporting purposes from 1 July 2005. We have restated comparative amounts in
accordance with the Group"s transition to IFRS as outlined in the Financial
Information. The measurement differences from previous GAAP are set out in note
10 of the Financial Information. IFRS also has presentational differences from
previous GAAP, including the treatment of income from jointly controlled
entities and exceptional items, as noted below, and the treatment of royalty and
petroleum related taxes of US$572 million (prior period US$601 million) which
are presented as taxation, rather than operating costs.
The introduction of IFRS has led to us reporting Underlying EBIT, which is a
measure used internally and in our Supplementary Information to reflect the
underlying performance of BHP Billiton"s operations. Underlying EBIT excludes
all net finance costs and taxation, including net finance costs and taxation of
jointly controlled entities and any exceptional items. Under IFRS, these amounts
are included in Profit from operations in the income statement. The differences
between Underlying EBIT and EBIT (Profit from operations) are set out in the
following table:
Year ended 30 June 2006 2005
US$M US$M
Underlying EBIT 15,277 9,921
Impact of equity accounting for
statutory purposes:
Share of jointly controlled entities" (95) (106)
net finance costs
Share of jointly controlled entities" (950) (433)
total taxation expense
Exceptional items (before taxation) 439 (111)
EBIT - Profit from operations 14,671 9,271
Earnings
Revenue (including revenue from third party product) together with our share of
jointly controlled entities" revenue was US$39.1 billion, up 25.5% from US$31.2
billion last year. The increase was due primarily to higher commodity prices.
Metallurgical coal, iron ore, base metals, aluminium and petroleum prices
contributed significantly to the increase in revenue. New and acquired
operations also provided increased volumes.
Underlying EBITDA increased by 50.0% to US$18.1 billion (from US$12.0 billion
last year). Underlying EBIT was US$15.3 billion compared with US$9.9 billion
last year, an increase of 54.0%.
The following table and commentary detail the approximate impact of the
principal factors that affected Underlying EBIT for the current year compared
with the prior year:
US$ Million
Underlying EBIT for the year ended 30 June 2005 9,921
Change in volumes:
Existing operations (75)
New and acquired operations 1,295
1,220
Change in sales prices 6,690
Change in costs:
Costs (rate and usage) (1,340)
Price-linked costs (475)
Exchange rates 0
Inflation on costs (310)
(2,125)
Asset sales (10)
Ceased and sold operations (10)
Exploration (280)
Other (129)
Underlying EBIT for the year ended 30 June 2006 15,277
Volumes - existing operations
Increased sales volumes of copper, iron ore, diamonds and molybdenum, from
operations existing at the beginning of the year contributed approximately
US$304 million to Underlying EBIT (measured at the prior period"s average
margins). Sales volumes of oil were lower than the prior year, due to natural
field decline and increased down time at existing assets. Depletion of reserves
at Riverside (Australia), extended maintenance outages at Blackwater (Australia)
and reduced shipments led to a decrease in sales volumes of metallurgical coal.
Reduced market demand for manganese alloy led to lower sales volumes for the
period. We also experienced decreased sales volumes of silver due to lower
production from our Cannington mine (Australia) resulting from lower head grades
and temporary closure of the southern zone.
Volumes - new and acquired operations
New operations increased Underlying EBIT by US$1,295 million, primarily due to a
full year"s contribution of US$918 million from the ex-WMC Resources Limited
(WMC) operations acquired in June 2005. Also included was a full year"s
production from ROD (Algeria), which commenced commercial production in October
2004, 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$6,690 million. Higher prices for most base metals products (copper in
particular), metallurgical coal, iron ore, all petroleum products and aluminium
contributed approximately US$7,200 million, which was partially offset by lower
prices for manganese alloy and the sale of lower quality diamonds.
Costs
Strong demand for resources globally has continued, leading to increased costs
across the industry for labour, contractors, raw materials, fuel, energy and
other input costs. In this environment, costs for the Group have increased by
US$1,340 million, inclusive of non cash costs of US$125 million primarily
related to increased depreciation due to the commissioning of new projects. Net
of non cash costs, this represents an increase on our 2005 cost base of 5.7%.
Specific areas of cost increases include changed mining conditions particularly
at Ekati (Canada) where we are mining a lower grade zone and Queensland Coal
(Australia) where mine mix changed following the closure of Riverside. Labour
and contractor charges, fuel, and consumables, as well as maintenance and other
operating costs have also increased. The commissioning of a number of new
operations meant depreciation charges also increased.
Price-linked costs
Higher price-linked costs reduced Underlying EBIT by US$475 million, largely
because of higher royalties (particularly for Carbon Steel Materials and
Petroleum products), increased treatment charges and refining charges (TCRCs)
and price participation charges for copper and higher LME linked power charges
in Aluminium.
Exchange rates
Exchange rate movements had a net nil impact on Underlying EBIT compared with
last year. The translation of monetary items had a favourable impact on
Underlying EBIT of US$90 million principally due to exchange gains from the
strengthening of the US dollar against the Australian dollar. This compared to
losses in the prior period. This was offset by an unfavourable impact on
operating costs of US$90 million, primarily due to the strengthening of the
Brazilian real against the US dollar.
The following exchange rates against the US dollar have been applied:
Average Average As at As at
Year Year Year Year
ended ended ended ended
30 June 30 June 30 June 30 June
2006 2005 2006 2005
Australian dollar (a) 0.75 0.75 0.74 0.76
Brazilian real 2.24 2.73 2.18 2.36
South African rand 6.41 6.21 7.12 6.67
(a) Displayed as US$ to A$1 based on common convention.
Inflation on costs
Inflationary pressures on input costs, mainly in Australia and South Africa, had
an unfavourable impact on Underlying EBIT of US$310 million.
Asset Sales
The impact from the sale of assets and interests on Underlying EBIT was US$10
million lower than for the prior period. The impact amounted to US$128 million
for the current period, principally related to the sale of BHP Billiton"s
interest in the Wonderkop chrome joint venture (South Africa) for US$61 million
and the Green Canyon (US) oil fields and the Vincent Van Gogh (Australia)
undeveloped oil discovery. This compared to higher profits in the prior year
which included 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, the profit of US$22 million on the sale of the Acerinox share
investment and the profit on the disposal of our interest in Integris Metals
(US) of US$19 million.
The profit on sale of the Tintaya copper mine (Peru) has been included in
exceptional items.
Ceased and sold operations
Ceased and sold operations had a US$10 million unfavourable impact on Underlying
EBIT. The current period was negatively impacted by the loss of earnings from
the Chrome business (South Africa) and the Laminaria and Corallina oil fields
(Australia) that were divested during the 2005 financial year, and the cessation
of production at Typhoon/Boris due to hurricane damage sustained during
September 2005. This was partly offset by the favourable impact of US$149
million of higher earnings from Tintaya, which was sold in June 2006, and US$137
million in relation to care and maintenance costs incurred at Boodarie Iron
(Australia) in the prior period.
Exploration
Exploration expense was US$280 million higher than the prior year. Petroleum
expenditure taken to profit increased by US$192 million due to increased
activity in the Gulf of Mexico, a US$41 million write-off of expenditure which
had previously been capitalised and a US$32 million impairment of the Cascade
and Chinook oil and gas prospects which have subsequently been sold. Minerals
exploration activity in Africa and Brazil also increased.
Other
Other items decreased Underlying EBIT by US$129 million. These included the one
off cost for adjusting our interest in Valesul (Brazil) to realisable value
prior to disposal of US$50 million, as well as a lower contribution from freight
activities. The US$60 million sale of an option held over an exploration
property in Pakistan partially offset these.
Net finance costs
Net finance costs increased to US$505 million, from US$331 million in the prior
period. This was driven largely by higher average debt balances following the
funding of the acquisition of WMC in June 2005, increased discounting on
provisions and a higher average interest rate but was partially offset by higher
capitalised interest.
Taxation expense
The total taxation expense on profit before tax was US$3,632 million,
representing an effective rate of 25.6%.
Excluding the impacts of exceptional items, royalty related taxation, 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 27.6%. When
compared to the UK and Australian statutory tax rate (30%), the underlying
effective tax rate included a benefit of 3.4% due to the recognition of US tax
losses (US$500 million). Royalty related taxation represents an effective rate
of 3.1% for the current year.
Following the transition to IFRS, certain 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 in prior years would 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.
Exceptional items
During June 2006, we sold our interest in the Tintaya copper mine in Peru.
Gross consideration received was US$853 million, before deducting intercompany
trade balances. The net consideration of US$717 million (net of transaction
costs) included US$634 million for shares plus the assumption of US$116 million
of debt, working capital adjustments and deferred payments contingent upon
future copper prices and production volumes. The profit on disposal was US$296
million (net of a taxation charge of US$143 million).
In the prior period exceptional items reduced profit after tax by US$30 million.
Refer note 2 in the Financial Information for further details.
Cash Flows
Net operating cash flow after interest and tax increased by 25.1% to US$10.5
billion. Higher profits increased cash generated from operating activities,
offset by an increase in working capital (principally due to higher prices), and
increased taxation payments.
Capital and exploration expenditure totalled US$6,005 million for the period.
Expenditure on major growth projects amounted to US$3,292 million, including
US$655 million on petroleum projects and US$2,637 million on minerals projects.
Other capital expenditure on maintenance, sustaining and minor capital items was
US$1,947 million. Investment cash flows included US$596 million primarily due
to the purchase of the remaining shares to complete the WMC acquisition.
Financing cash flows include the US$2.0 billion capital management program
completed in May 2006 and increased dividend payments.
Net debt, comprising cash and interest bearing liabilities, was US$8.2 billion,
a decrease of US$0.5 billion, or 5.6%, compared to 30 June 2005. Gearing, which
is the ratio of net debt to net debt plus net assets, was 25.2% at 30 June 2006,
compared with 32.8% at 30 June 2005.
Underlying net debt (which varies from net debt above as it includes net debt of
jointly controlled entities) was US$9.2 billion, down from US$10.0 billion at 30
June 2005. Underlying gearing was 27.2% at 30 June 2006, compared to 35.8% at 30
June 2005.
Dividend
A final dividend for the year ended 30 June 2006 of 18.5 US cents per share will
be paid to shareholders on Wednesday 27 September 2006. Together with the
interim dividend of 17.5 US cents per share paid to shareholders on 22 March
2006, this brings the total dividend for the year to 36.0 US cents per share.
The dividend paid by BHP Billiton Limited will be fully franked for Australian
taxation purposes. Dividends for the BHP Billiton Group are determined and
declared in US dollars. However, BHP Billiton Limited dividends are mainly paid
in Australian dollars, and BHP Billiton Plc dividends are mainly paid in pounds
sterling and South African rands to shareholders on the UK section and the South
African section of the register, respectively. Currency conversions were based
on the foreign currency exchange rates two business days before the declaration
of the dividend.
The timetable in respect of this dividend will be:
Currency conversion - 21 August 2006
Last day to trade Johannesburg Stock Exchange - 1 September 2006
Ex-dividend Australian Stock Exchange - 4 September 2006
Ex-dividend JSE Limited ("JSE") - 4 September 2006
Ex-dividend London Stock Exchange - 6 September 2006
Record - 8 September 2006
Payment - 27 September 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,
nor will transfers between the UK register and the South African register be
permitted, between the dates of 4 September 2006 and 8 September 2006.
The following table details the currency exchange rates applicable for the
dividend:
Dividend 18.5 US cents Exchange Rate Dividend per ordinary
sharein local
currency
Australian cents 0.763247 24.238549
British pence 1.895575 9.759572
South African cents 7.033723 130.123876
New Zealand cents 0.640678 28.875660
Portfolio Management
Portfolio activities continued during the year with proceeds amounting to US$928
million realised. We disposed of a number of assets and interests including our
Tintaya mine, our 50% interest in the Wonderkop chrome joint venture, the Green
Canyon 18 and 60 oil fields, our one third interest in the Hi-Fert fertiliser
business (Australia) and our ownership of the Zululand Anthracite Colliery
(South Africa). This brings to US$5.6 billion the total proceeds realised on
assets and interests over the last five years.
At 30 June 2006 we had also announced the sale of our Southern Cross Fertiliser
operations (Australia), our Australian Coal Bed Methane assets (Australia), our
interest in the Valesul aluminium smelter (Brazil), our Cascade and Chinook oil
and gas prospects (US) and the Koornfontein energy coal mine (South Africa). At
30 June 2006 final sale of these assets was subject to satisfying certain
conditions precedent and as such the assets were held in the balance sheet at
the lower of carrying value and expected sale price, less costs to sell.
Completion of sale has now been achieved on the Southern Cross Fertiliser
operations, Valesul, the Coal Bed Methane assets and Cascade and Chinook.
Capital Management and Liquidity
On 16 May this year, the Group completed the US$2 billion capital management
program, which was announced in February 2006. A US$1.6 billion off-market
share buy-back of 96.0 million shares in BHP Billiton Limited was completed in
April 2006. The shares were purchased at a price of A$23.45, which represented a
14% discount to the volume weighted average trading price over the five days up
to and including the buy-back closing date. Subsequently, a further US$409
million was spent on an on-market repurchase of 18.8 million BHP Billiton Plc
shares at an average price of 1153.56 pence. This represented a discount to the
average BHP Billiton Limited share price over the buy-back period of 8.8%.
The aggregate shares repurchased under both programs totalled 114.8 million
shares, or 1.9% of the issued share capital of the BHP Billiton Group.
In October 2005 BHP Billiton filed a US$3.0 billion shelf registration statement
with the US Securities and Exchange Commission (SEC). In December 2005, we
issued an SEC registered Global Bond comprising US$600 million of 5.00% Senior
Notes due 2010 and US$750 million of 5.25% Senior Notes due 2015. In May 2006,
BHP Billiton issued Euro 650 million of 4.125% Euro Bonds due May 2011. The
proceeds were used to partially repay debt incurred to fund the acquisition of
WMC and to repay commercial paper.
Corporate Governance
The following Board changes occurred during the year:
- Mr Michael Chaney and Lord Renwick of Clifton retired as Directors on 25
November 2005;
- The Hon. E Gail de Planque was appointed a Non-executive Director from 19
October 2005;
- Mr Marius Kloppers (Group President Non-Ferrous Materials) and Mr Chris
Lynch (Group President Carbon Steel Materials) were appointed Executive
Directors from 1 January 2006; and
- Mr Paul Anderson and Mr Jacques Nasser were appointed Non-executive
Directors from 6 June 2006.
Following a review, the Sustainability Committee was restructured. Its members
are now Dr David Brink (Chairman), Mr Paul Anderson, The Hon. E Gail de Planque
and Dr John Schubert. In addition, Mr Carlos Cordeiro and The Hon. E Gail de
Planque were appointed members of the Remuneration Committee in place of Dr John
Schubert, who has ceased to be a member of that Committee. Mr Jacques Nasser was
also appointed a member of the Risk and Audit Committee.
On 1 August 2006, Mr Miklos Salamon announced his intention to retire from the
Board on 26 October 2006.
Outlook
Global economic outlook
The global economy has recorded strong growth during the 2006 year to date. In
Asia, growth has been supported by continued domestic demand, exports and
investment, dominated by China"s continuing industrialisation and urbanisation
and continued growth in Japan. Similarly, economic activity in Europe gained
momentum, with Germany"s industrial production maintaining a solid upward trend.
US export growth provided support for overall economic expansion with buoyant
export markets helped by the lagged effects of a weakening dollar. In this
environment, commodity prices continued to post multi-decade highs. Economies
with strong energy and minerals exports, particularly in Russia, Australia and
parts of South America, have benefited.
The global economic outlook continues to be positive, although rates of growth
are likely to slow given high energy prices and the increasing trend of higher
interest rates. Growth in Asia will help drive the global economy, with Japan"s
expansion well-established. China"s economic growth is expected to remain
strong, even if attempts to cool strong growth are successful. Elsewhere, the US
economy will slow from rapid growth experienced earlier in the year, but is
likely to remain at levels consistent with long-term trends. While the outlook
for the global economy and commodity prices is encouraging, it is not without
risk. Escalating geopolitical tensions, supply disruptions, and high energy
prices are contributing to a tight oil market, and are adding to increased
uncertainty in markets. Consumers are concerned about the broader impact of
further increases in oil prices and rising interest rates.
Commodity prices
Commodity prices persist at high levels compared to recent years. In real
terms, base metals prices are now at similar levels to the prices experienced in
the late 1980s. Inventories on market exchanges (as a proportion of demand)
continue to tighten. The major difference between the situation today and that
of previous periods is the coincidence of high prices across the energy and
minerals spectrum. Today, in addition to high base metals prices, oil prices in
real terms have approached the levels seen in the 1970s and the real prices of
key steel-making raw materials are at levels last seen in the early 1980s. The
confluence of demand growth across the commodity spectrum in the developed and
developing economies coupled with a lag in the supply response has driven the
higher prices. Increasing investor interest in commodity markets and low
inventory levels have undoubtedly contributed to price levels and volatility.
Forward prices of LME metals and oil remain above long-term historical averages,
indicating that large scale supply surpluses are currently not being anticipated
in these markets. Natural and man made events are likely to continue to disrupt
supply. Regulatory approvals and rising capital costs are delaying project
developments. These factors could further tighten already short markets.
Similarly, there are no signs of an imminent retreat in bulk commodity prices.
However high prices are inevitably leading to some substitution.
Strong increases in industry operating and capital costs, shortages of
experienced people in some areas and lengthy timeframes for installing new
capacity, suggest that it will be some time before a material supply response
occurs. Therefore we are likely to see an extended period of high cyclical
prices. As we have consistently stated however, over the longer term we expect
the introduction of new capacity to return prices to more sustainable levels.
Annual General Meetings
The Annual General Meeting of BHP Billiton Plc will be held at the Royal
Horticultural Halls, Lindley Hall, 80 Vincent Square, SW1P 2PE, London, UK, on
Thursday 26 October 2006, commencing at 10:30am.
The Annual General Meeting of BHP Billiton Limited will be held at the Brisbane
Convention and Exhibition Centre, Plaza Ballroom, Cnr Merivale & Glenelg
Streets, Southbank, Brisbane, Queensland, Australia on Wednesday 29 November
2006, commencing at 10.30am.
The Annual Report and details of the business to be conducted at the meetings
will be mailed to shareholders in mid to late September 2006.
Growth Projects
Four major growth projects were completed during the 2006 financial year.
Completed projects
Customer Project Capacity (1) Capital Date of
Sector expenditure(US initialproduct
Group $ million) (1) ion (2)
Budget Actual Target Actual
Aluminium Worsley 250,000
Development tonnes per 165 165 Q1 Q2
Capital annum of 2006 2006
Projects(Austra alumina
lia)BHP (100%)
Billiton - 86%
Base Escondida Maintain
Metals Norte(Chile)BHP capacity at 230 251 Q4 Q4
Billiton - 1.25 million 2005 2005
57.5% tonnes per
annum of
copper (100%)
Escondida 180,000
Sulphide tonnes per 500 500 H2 Q2
Leach(Chile)BHP annum of 2006 2006
Billiton - copper
57.5% cathode
(100%)
Carbon WA Iron Ore Increase
Steel Rapid Growth system 489 489 H2 Q2
Materials Project capacity to 2006 2006
2(Australia)BHP 118 million
Billiton - 85% tonnes per
annum (100%)
1,384 1,405
(1) All references to capital expenditure and capacity are BHP Billiton"s share
unless otherwise noted. Escondida Norte was delivered to budget in local
currency. Costing is yet to be finalised on the three remaining projects.
(2) References to quarters and half years are based on calendar years.
There are 13 major projects (defined as BHP Billiton"s share of capital
expenditure of greater than US$100 million) under development with a total
budgeted investment of US$9,503 million. Full details for these are given in
the quarterly Exploration and Development Report, released on 25 July 2006.
Projects approved during the year
Customer Sector Project Capacity (1) Budgeted Target date
Group capital for initial
expenditure production
(US$ (2)
million) (1)
Petroleum Shenzi(US)BHP 100,000
Billiton - 44% barrels of 1,940 Mid 2009
oil and 50
million
cubic feet
of gas per
day (100%)
Stybarrow(Aust 80,000
ralia)BHP barrels of 300 Q1 2008
Billiton - 50% liquids per
day (100%)
North West 800 million
Shelf cubic feet 200 End 2008
Angel(Australi of gas per
a)BHP Billiton day (100%)
- 16.67%
Aluminium Alumar 2 million
Refinery tonnes per 518 Mid 2008
Expansion(Braz annum of
il)BHP alumina
Billiton - 36% (100%)
Carbon Steel WA Iron Ore 20 million
Materials Rapid Growth tonnes per 1,300 Q4 2007
Project annum of
3(Australia)BH iron ore
P Billiton - (100%)
85%
Samarco(Brazil 7.6 million
)BHP Billiton tonnes per 590 H1 2008
- 50% annum of
iron pellets
(100%)
Diamonds and Koala 3,300 tonnes
Specialty Products Underground(Ca per day of 200 End 2007
nada)BHP ore
Billiton - 80% processed
(100%)
5,048
(1) All references to capital expenditure and capacity are BHP Billiton"s share
unless noted otherwise.
(2) References to quarters and half years are based on calendar years.
Projects currently under development (approved in prior years)
Customer Sector Project Capacity (1) Budgeted Target
Group capital date for
expenditure initial
(US$ production
million) (2)
(1)
Petroleum Atlantis 200,000 1,115(3) Under
South(US)BHP barrels of review
Billiton - 44% oil and 180
million
cubic feet
of gas per
day (100%)
Neptune(US)BHP 50,000
Billiton - 35% barrels of 300 End 2007
oil and 50
million
cubic feet
of gas per
day (100%)
North West LNG
Shelf 5th processing 250(3) Late
Train(Australi capacity 4.2 2008(3)
a)BHP Billiton million
- 16.7% tonnes per
annum (100%)
Base Metals Spence(Chile)B 200,000
HP Billiton - tonnes per 990 Q4 2006
100% annum of
copper
cathode
Stainless Steel Ravensthorpe Up to 50,000 1,340(3) Q2 2007(3)
Materials Nickel(Austral tonnes per
ia)BHP annum of
Billiton -100% contained
nickel in
concentrate
Yabulu 45,000 460 Q3 2007
Extension(Aust tonnes per
ralia)BHP annum of
Billiton - nickel
100%
4,455
(1) All references to capital expenditure and capacity are BHP Billiton"s share
unless noted otherwise.
(2) References to quarters and half years are based on calendar years.
(3) Project costs and schedule are currently under review - refer Exploration
and Development Report released 25 July 2006.
CUSTOMER SECTOR GROUP SUMMARY
The following table provides a summary of the Customer Sector Group results for
the year ended 30 June 2006 and the prior period.
Year ended 30 Revenue together with Underlying EBIT (1)
June share of jointly
(US$ Million) controlled entities"
revenues (1)
2006 2005 Change % 2006 2005 Change
%
Petroleum 5,876 5,970 (1.6) 2,968 2,395 23.9
Aluminium 5,084 4,651 9.3 1,191 959 24.2
Base Metals 10,294 5,043 104.1 5,400 2,171 148.7
Carbon Steel 9,760 7,597 28.5 4,503 2,800 60.8
Materials
Diamonds and 1,263 1,509 (16.3) 345 560 (38.4)
Specialty
Products
Energy Coal 3,319 3,387 (2.0) 327 587 (44.3)
Stainless Steel 2,955 2,274 29.9 901 712 26.5
Materials
Group and 667 813 (18.0) (358) (263) N/A
unallocated items
(2)
Less: inter- (119) (94) N/A
segment turnover
BHP Billiton 39,099 31,150 25.5 15,277 9,921 54.0
Group
(1) Revenue together with share of jointly controlled entities" revenues, and
Underlying EBIT include trading activities comprising the sale of third party
product. Underlying EBIT is defined on page 16.
(2) Includes consolidation adjustments, unallocated items and external sales
from the Group"s freight, transport and logistics operations.
Petroleum
Underlying EBIT was US$2,968 million, an increase of US$573 million, or 23.9%,
compared to last year. This was mainly due to higher average realised prices for
all petroleum products, including higher average realised oil prices per barrel
of US$61.90 (compared with US$47.16), higher average realised natural gas prices
of US$3.33 per thousand standard cubic feet (compared with US$2.98), higher
liquefied natural gas prices of US$6.76 per thousand standard cubic feet
(compared to US$5.75) and higher average realised prices for liquefied petroleum
gas of US$483.74 per tonne (compared to US$382.85 per tonne). Increased volumes
from the first full year of production from ROD, Angostura and Mad Dog also had
a favourable effect. This was partially offset by lower volumes from existing
assets due to natural field decline, and higher downtime for maintenance and
weather related disruptions. The negative impact of the loss of the Typhoon (US)
platform as a result of Hurricane Rita in September 2005 was partially offset by
insurance recoveries, and the loss of earnings following the disposal of our
interest in the Laminaria asset in January 2005 also reduced earnings.
Increased maintenance expenses and higher price linked costs (mainly royalties
and excise) also had an unfavourable impact.
Exploration expenditure charged to profit was US$394 million (including the
US$32 million impairment of Cascade and Chinook and US$41 million of other
exploration expenditure previously capitalised). Gross expenditure on
exploration of US$447 million was US$67 million higher than for the 2005
financial year as a result of increased activity in the Gulf of Mexico.
Aluminium
Underlying EBIT was US$1,191 million, an increase of US$232 million, or 24.2%,
compared to last year. Higher prices for aluminium and alumina had a favourable
impact, with the average LME aluminium price increasing to US$2,244 per tonne
(compared with US$1,804 per tonne for the corresponding period). Earnings from
third party trading were also higher.
Earnings were adversely impacted mainly by higher charges for LME linked power,
raw materials, fuel, labour and pot relining, in line with global supply
pressures. Exchange rate movements in the period also had an unfavourable effect
on EBIT, particularly on the earnings derived from our Brazilian operations. The
write-down of US$50 million of our interest in Valesul to fair value, in line
with the value achieved on its subsequent divestment, was also a factor.
Despite the higher costs, EBIT margins improved significantly in the second half
of the year. This improved translation of rising aluminium and alumina price
into higher net earnings, despite the current environment of rising costs,
reflects an intensive focus on cost containment.
Base Metals
Underlying EBIT was US$5,400 million, an increase of US$3,229 million, or
148.7%, compared to last year. This was mainly attributable to higher average
LME prices for copper of US$2.28/lb (compared to US$1.43/lb) and higher prices
for silver, zinc and lead. Higher production volumes from record copper and
silver production at Escondida (Chile), record copper, silver and molybdenum
production at Antamina (Peru), record zinc production at Cannington (Australia)
and record gold production at Tintaya (Peru) also led to increased earnings. The
inclusion of Olympic Dam"s (Australia) results for the full period, following
its acquisition in June 2005, also contributed positively. The increase was
partially offset by higher price linked TCRCs and price participation costs,
charges for raw materials, labour and contractors and higher depreciation costs
due to the commissioning of Escondida Norte.
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.
Certain of our base metal sales agreements provide for provisional pricing based
on the LME official price prior to shipment. Final settlement is based on the
average applicable price for a specified future quotational period. The common
market quotational periods on sales are the average of the calendar month after
the month of shipment for cathode and the average of two to four calendar months
after the month of shipment for concentrate. We record revenue upon the transfer
of risk and title using the applicable sales contracts price (typically the
provisional price). The revenue is adjusted to fair value through each profit
period using the forward curve until final pricing is determined. We consider
this approach to appropriately measure the fair value of the relevant sales
agreements at period end. The impact of provisional pricing of copper shipments
with a rising LME price favourably impacted finalised and outstanding average
copper revenues by US$0.37/lb over the LME average. Average copper revenue for
2006 was US$2.66/lb versus US$1.51/lb in 2005. Outstanding copper volumes,
subject to the fair value measurement previously described amounted to 274,280
tonnes at 30 June 2006 compared to 231,874 tonnes in the prior year. These were
revalued at a weighted average price of US$3.35/lb compared to US$1.54/lb in the
prior year.
Carbon Steel Materials
Underlying EBIT was US$4,503 million, an increase of US$1,703 million, or 60.8%,
compared to last year. This reflects higher prices and volumes and an increased
level of spot sales for iron ore, as well as increased prices for metallurgical
coal. This was partially offset by lower prices for manganese alloy. Higher
operating costs at all operations had an adverse impact during the period and
was largely attributable to higher contractor and labour costs, price-linked
royalty costs and fuel and energy costs. Queensland Coal (Australia) also
experienced extended maintenance outages and a change in mine mix in the period,
following the closure of Riverside.
A weaker A$/US$ exchange rate had a favourable impact, as did the closure of the
Boodarie Iron plant, announced in June 2005. The same period last year included
care and maintenance costs for the plant whilst there was no impact in the
current period as all anticipated closure costs were provided for in June 2005.
Depreciation charges increased as new projects were commissioned, as did
exploration expenditure to support a higher level of exploration activity
largely at Maruwai (Indonesia). Earnings on freight activities were lower.
Diamonds and Specialty Products
Underlying EBIT was US$345 million, a decrease of US$215 million, or 38.4%,
compared to last year. This was due to a lower value per carat for diamonds
(down 24% from last year) because of lower carat quality and higher unit costs
in relation to the processing of lower grade material and moving to underground
mining areas at Ekati (Canada). The prior year included six months of earnings
and the profit on sale from Integris Metals (US), which was sold in January
2005. However, the inclusion of a full year of earnings from Southern Cross
Fertiliser operations acquired in June 2005 was positive, as was higher sales
volumes for diamonds and titanium feedstock and a reduced depreciation charge
primarily as a result of an extension of mine life following approval of the
Koala Underground project.
At Ekati, the 2007 financial year will be another transition year, from open pit
to underground mining, which will be negatively impacted by lower value diamond
production. In the medium term, increasing underground production from Panda and
Koala will help restore profitability to historical levels.
Energy Coal
Underlying EBIT was US$327 million, a decrease of US$260 million, or 44.3%,
compared to last year. Higher fuel and operating costs across all operations,
adverse inflationary movements, particularly in South Africa, and higher freight
costs were key contributors to the reduced result. Costs increased at Ingwe
(South Africa) largely due to higher depreciation resulting from changed
estimates of the economic lives of certain underground export operations and the
depreciation of rehabilitation assets. 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.
The cessation of earnings from the Zululand Anthracite Colliery following its
divestment during the year had a negative impact on the result whilst a
favourable movement of the rand against the US dollar had a positive impact.
Stainless Steel Materials
Underlying EBIT was US$901 million, an increase of US$189 million, or 26.5%,
compared to last year. The inclusion of a full year of results from the Nickel
West operations (Australia), acquired in June 2005, as well as a US$61 million
profit on the sale of BHP Billiton"s interest in the Wonderkop joint venture
effective November 2005 were key factors in the increased result. The impact of
slightly higher average realised nickel prices was partially offset by decreased
prices for cobalt. The average LME nickel price was US$7.03/lb versus US$6.78/lb
in the comparative period.
Negative impacts included lower production and higher fuel costs at the QNI
Yabulu refinery (Australia) as a result of lower operational performance, tie-in
activity relating to the refinery expansion and delays to the Gas Conversion
project. Offsetting the Underlying EBIT increase was US$113 million included
in the prior year relating to earnings from the Group"s Chrome operations, which
were sold effective 1 June 2005.
Group and Unallocated Items
Underlying net corporate operating costs excluding exchange impacts were US$251
million compared to US$147 million in the prior year, an increase of US$104
million. This was due primarily to higher net insurance costs of US$55 million
associated with insurance claims arising from natural disasters and incidents.
In addition, higher costs relating to corporate projects, sponsorships and
regulatory compliance, including Sarbanes-Oxley, contributed approximately US$32
million.
Lower one-off costs in relation to the acquisition of WMC had a favourable
impact in the current period, partially offset by a gain in 2005 in relation to
the close out of the cash settled derivatives contracts on the acquisition of
WMC shares.
Minerals exploration expenditure has increased from US$67 million to US$115
million, mainly due to increased exploration activity in Africa and Brazil. In
addition, the profit on the sale of an option held over an exploration property
in Pakistan contributed US$ 60 million.
The following notes explain the terms used throughout this profit release
(footnotes refer to table on page 1):
(1) Underlying EBIT margin is calculated net of third party product activities.
(2) Underlying EBIT is earnings before net finance costs and taxation, and
jointly controlled entities" net finance costs and taxation and any exceptional
items. Underlying EBITDA is Underlying EBIT before depreciation, impairments,
and amortisation of US$2,776 million (comprising Group depreciation, impairments
and amortisation of US$2,427 million and jointly controlled entities"
depreciation and amortisation of US$349 million) for the year ended 30 June 2006
and US$2,115 million (comprising Group depreciation, impairments and
amortisation of US$1,818 million and jointly controlled entities" depreciation
and amortisation of US$297 million) for the year ended 30 June 2005. 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.
(3) 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.
(4) Net operating cash flow includes dividends from jointly controlled entities
and is after net interest and taxation.
(5) 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.
Forward-looking statements
Certain statements contained in this release, including statements in the
section entitled `Preparing for future growth" 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 our 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 are 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:
www.bhpbilliton.com
Australia United Kingdom
Samantha Evans, Media Relations Mark Lidiard, Investor & Media
Tel: +61 3 9609 2898 Relations
Mobile: +61 400 693 915 Tel: +44 20 7802 4156
email: Samantha.Evans@bhpbilliton.com Mobile: +44 7769 934 942
email: Mark.Lidiard@bhpbilliton.com
Jane Belcher, Investor Relations Illtud Harri, Media Relations
Tel: +61 3 9609 3952 Tel: +44 20 7802 4195
Mobile: +61 417 031 653 Mobile: +44 7920 237 246
email: Jane.H.Belcher@bhpbilliton.com email: Illtud.Harri@bhpbilliton.com
United States South Africa
Tracey Whitehead, Investor Relations Alison Gilbert, Investor Relations
Tel: +44 020 7802 4031 Tel SA: +27 11 376 2121 or
Mobile: +44 7917 648 093 UK: +44 20 7802 4183
email: email:
Tracey.Whitehead@bhpbilliton.com Alison.Gilbert@bhpbilliton.com
FINANCIAL INFORMATION
For the year ended
30 June 2006
Financial Information
Consolidated Income Statement - Page 20
Consolidated Statement of Recognised Income and Expense - Page 21
Consolidated Balance Sheet - Page 22
Consolidated Cash Flow Statement - Page 23
Notes to the Financial Information - Page24
The financial information included in this document for the year ended 30 June
2006 is unaudited and has been derived from the draft financial report of the
BHP Billiton Group for the year ended 30 June 2006. The financial information
does not constitute the Group"s full financial statements for the year ended 30
June 2006, which will be approved by the Board and reported on by the auditors
and subsequently filed with the registrar of companies and the Australian
Securities and Investments Commission.
The financial information set out on pages 20 to 32 for the year ended 30 June
2006 has been prepared in accordance with the requirements of the UK Companies
Act 1985 and Australian Corporations Act 2001 and with:
* Australian equivalents to International Financial Reporting Standards (IFRS)
as issued by the Australian Accounting Standards Board and interpretations
effective as of 30 June 2006;
* IFRSs and interpretations as adopted by the European Union (EU) as of 30 June
2006; and
* those standards and interpretations adopted early as described in the
Accounting Policies section of the announcement of the results for the six
months ended 31 December 2005.
The above standards and interpretations 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)
(regarding adequacy of accounting records and returns) or section 237(3)
(regarding provision of necessary information and explanations) of the Companies
Act 1985.
The basis of preparation of this financial information is different to that of
the most recent comparative year annual financial report due to the first time
adoption of IFRS. 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 10. 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.
IFRS 1 / AASB 1 "First time adoption of International Financial Reporting
Standards", in general requires accounting policies to be applied
retrospectively in order to determine an opening balance sheet at the BHP
Billiton Group"s IFRS transition date of 1 July 2004, and allows certain
exemptions on the transition to IFRS which the BHP Billiton Group has elected to
apply. Those elections considered significant to the BHP Billiton Group 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" have been applied from 1 July 2005 and not for the year ended 30
June 2005.
The following exchange rates against the US dollar have been applied in the
financial information:
Average Average As at As at
Year Year Year Year
ended ended ended ended
30 June 30 June 30 June 30 June
2006 2005 2006 2005
Australian dollar (a) 0.75 0.75 0.74 0.76
Brazilian real 2.24 2.73 2.18 2.36
Canadian dollar 1.16 1.25 1.11 1.23
Chilean peso 532 595 546 579
Colombian peso 2,324 2,454 2,635 2,329
South African rand 6.41 6.21 7.12 6.67
Euro 0.82 0.79 0.78 0.83
UK pound sterling 0.56 0.54 0.55 0.55
(a) Displayed as US$ to A$1 based on common convention.
Consolidated Income Statement for the year ended 30 June 2006
2006 2005
Notes US$M US$M
Revenue together with share of jointly
controlled entities revenue
Group production 34,139 24,759
Third party products 4,960 6,391
39,099 31,150
Less: Share of jointly controlled (6,946) (4,428)
entities" external revenue included above
Revenue 32,153 26,722
Other income 1,227 757
Expenses excluding finance costs (22,403) (19,995)
Share of profits from jointly controlled 7 3,694 1,787
entities
Profit from operations 14,671 9,271
Comprising:
Group production 14,560 9,157
Third party products 111 114
14,671 9,271
Financial income 3 226 216
Financial expenses 3 (731) (547)
Net finance costs 3 (505) (331)
Profit before taxation 14,166 8,940
Income tax expense (3,207) (1,876)
Royalty related taxation (net of income (425) (436)
tax benefit)
Total taxation expense 4 (3,632) (2,312)
Profit after taxation 10,534 6,628
Profit attributable to minority interests 84 232
Profit attributable to members of BHP 10,450 6,396
Billiton Group
Earnings per ordinary share (basic) (US 5 173.2 104.4
cents)
Earnings per ordinary share (diluted) (US 5 172.4 104.0
cents)
Dividends per ordinary share - paid during 6 32.0 23.0
the period (US cents)
Dividends per ordinary share - declared in 6 36.0 28.0
respect of the period (US cents)
The accompanying notes form part of this financial information.
Consolidated Statement of Recognised Income and Expense for the year ended 30
June 2006
2006 2005
US$M US$M
Profit for the year 10,534 6,628
Amounts recognised directly in equity
Actuarial gains/(losses) on pension and 111 (149)
medical plans
Available for sale investments:
Valuation gains/(losses) taken to equity (1) -
Cash flow hedges:
Gains /(losses) taken to equity (27) -
(Gains) / losses transferred to the (25) -
initial carrying amount of hedged items
Exchange fluctuations on translation of (1) 7
foreign operations
Tax on items recognised directly in, or 4 52
transferred from, equity
Total amounts recognised directly in 61 (90)
equity
Total recognised income and expense for 10,595 6,538
the year
Attributable to minority interests 84 232
Attributable to members of BHP Billiton 10,511 6,306
Group
Effect of change in accounting policy
Impact of adoption of IAS 39 / AASB 139
(net of tax) to:
- retained earnings 55 -
- hedging reserve 30 -
- financial assets reserve 116 -
Total effect of change in accounting 201 -
policy
Attributable to minority interests - -
Attributable to members of BHP Billiton 201 -
Group
The accompanying notes form part of this financial information.
Consolidated Balance Sheet as at 30 June 2006
2006 2005
US$M US$M
ASSETS
Current assets
Cash and cash equivalents 776 1,222
Trade and other receivables 3,831 3,175
Other financial assets 808 69
Inventories 2,732 2,422
Assets held for sale 469 -
Other 160 148
Total current assets 8,776 7,036
Non-current assets
Trade and other receivables 813 786
Other financial assets 950 257
Inventories 93 101
Investments in jointly controlled entities 4,299 3,254
Property, plant and equipment 30,985 27,764
Intangible assets 683 667
Deferred tax assets 1,829 1,906
Other 88 72
Total non-current assets 39,740 34,807
Total assets 48,516 41,843
LIABILITIES
Current liabilities
Trade and other payables 4,053 3,856
Interest bearing liabilities 1,368 1,298
Liabilities held for sale 192 -
Other financial liabilities 544 -
Current tax payable 1,268 936
Provisions 1,067 1,097
Deferred income 279 262
Total current liabilities 8,771 7,449
Non-current liabilities
Trade and other payables 169 156
Interest bearing liabilities 7,648 8,651
Other financial liabilities 289 -
Deferred tax liabilities 1,682 2,351
Provisions 4,853 4,613
Deferred income 649 707
Total non-current liabilities 15,290 16,478
Total liabilities 24,061 23,927
NET ASSETS 24,455 17,916
EQUITY
Share capital - BHP Billiton Limited 1,490 1,611
Share capital - BHP Billiton Plc 1,234 1,234
Share premium account 518 518
Treasury shares held (418) (8)
Reserves 306 161
Retained earnings 21,088 14,059
Total equity attributable to members of 24,218 17,575
BHP Billiton Group
Minority interests 237 341
Total equity 24,455 17,916
The accompanying notes form part of this financial information.
Consolidated Cash Flow Statement for the year ended 30 June 2006
2006 2005
US$M US$M
Operating activities
Receipts from customers 32,938 28,425
Payments to suppliers and employees (20,944) (18,801)
Cash generated from operations 11,994 9,624
Dividends received 2,671 1,002
Interest received 121 90
Interest paid (499) (315)
Income tax paid (3,152) (1,476)
Royalty related taxation paid (659) (551)
Net operating cash flows 10,476 8,374
Investing activities
Purchases of property, plant and equipment (5,239) (3,450)
Exploration expenditure (including amounts (766) (531)
capitalised)
Purchases of investments and funding of (65) (42)
jointly controlled entities
Purchases of, or increased investment in, (531) (6,198)
subsidiaries, operations and jointly
controlled entities, net of their cash
Cash outflows from investing activities (6,601) (10,221)
Proceeds from sale of property, plant and 92 153
equipment
Proceeds from sale or redemption of 153 227
investments
Proceeds from sale or partial sale of 844 675
subsidiaries, operations and jointly
controlled entities, net of their cash
Net investing cash flows (5,512) (9,166)
Financing activities
Proceeds from ordinary share issues 34 66
Proceeds from interest bearing liabilities 5,912 5,668
Repayment of interest bearing liabilities (7,013) (1,735)
Purchase of shares by ESOP trusts (187) (47)
Share buy-back - BHP Billiton Limited (1,619) (1,792)
Share buy-back- BHP Billiton Plc (409) -
Dividends paid (1,936) (1,404)
Dividends paid to minority interests (190) (238)
Repayment of finance leases (4) (22)
Net financing cash flows (5,412) 496
Net increase in cash and cash equivalents (448) (296)
Cash and cash equivalents, net of 1,207 1,509
overdrafts, at beginning of year
Effect of foreign currency exchange rate 1 (6)
changes on cash and cash equivalents
Cash and cash equivalents, net of 760 1,207
overdrafts, at end of year
The accompanying notes form part of this financial information.
Notes to the Financial Information
1 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 (exploration for and mining of diamonds and
titanium minerals and fertiliser operations);
* Energy Coal (exploration for and mining, processing and marketing of energy
coal); and
* Stainless Steel Materials (exploration for and mining, processing and
marketing of nickel and, prior to divestment in June 2005, chrome).
Group and unallocated items represent Group centre functions and 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.
US$ million Petroleum Aluminium Base Carbon Diamonds
Metals Steel and
Materials Specialty
Products
Year ended 30
June 2006
Revenue together
with share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 4,797 3,704 9,034 9,626 1,263
production
Sale of third 967 1,374 1,259 88 -
party product
Rendering of 3 6 1 38 -
services
Inter-segment 109 - - 8 -
revenue
5,876 5,084 10,294 9,760 1,263
Less: share of (5) (107) (5,393) (626) (377)
jointly
controlled
entities"
external revenue
included above
Segment revenue 5,871 4,977 4,901 9,134 886
Segment result 2,963 917 1,998 4,159 209
Other 5 37 9
attributable - -
income (1)
Share of profits - 193 3,015 262 91
from jointly
controlled
entities
Profit from 2,968 1,147 5,013 4,430 300
operations
Adjusted EBITDA 3,798 1,468 5,093 4,772 396
Other (7) (44) 267 15 (3)
significant non-
cash items
EBITDA 3,791 1,424 5,360 4,787 393
Depreciation and (720) (227) (339) (356) (93)
amortisation
Impairment (113) (50) (8) (1) -
losses
recognised
Reversals of 10 - - - -
previous
impairment
losses
recognised
Profit from 2,968 1,147 5,013 4,430 300
operations
Profit from 2,963 1,071 5,017 4,433 300
group production
Profit from 5 76 (4) (3) -
third party
product
Capital 1,124 366 861 1,606 202
expenditure
Segment assets 7,420 6,061 9,419 6,905 1,630
Investments in 112 551 2,511 410 115
jointly
controlled
entities
Total assets 7,532 6,612 11,930 7,315 1,745
Segment 2,208 1,048 2,617 2,136 178
liabilities
Contintued...
US$ million Stainless Group and BHP
Energy Steel unallocated Billiton
Coal Materials items/ Group
eliminations
Year ended 30
June 2006
Revenue together
with share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 2,713 2,916 5 34,058
production
Sale of third 606 37 629 4,960
party product
Rendering of - - 33 81
services
Inter-segment - 2 (119) -
revenue
3,319 2,955 548 39,099
Less: share of (438) - - (6,946)
jointly
controlled
entities"
external revenue
included above
Segment revenue 2,881 2,955 548 32,153
Segment result 131 901 (301) 10,977
Other (51)
attributable - - -
income (1)
Share of profits 139 - (6) 3,694
from jointly
controlled
entities
Profit from 270 901 (358) 14,671
operations
Net finance (505)
costs
Income tax (3,207)
expense
Royalty related (425)
taxation
Profit after 10,534
taxation
Adjusted EBITDA 500 1,185 (242) 16,970
Other 17 (41) (76) 128
significant non-
cash items
EBITDA 517 1,144 (318) 17,098
Depreciation and (247) (243) (39) (2,264)
amortisation
Impairment (1) (173)
losses - -
recognised
Reversals of - - - 10
previous
impairment
losses
recognised
Profit from 270 901 (358) 14,671
operations
Profit from 233 901 (358) 14,560
group production
Profit from 111
third party 37 - -
product
Capital 131 1,423 41 5,754
expenditure
Segment assets 3,018 5,692 4,050 44,195
Investments in 622 4,321
jointly - -
controlled
entities
Total assets 3,640 5,692 4,050 48,516
Segment 1,759 898 13,217 24,061
liabilities
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated / eliminations to the
applicable CSG / business segment.
1 Business segments continued
US$ million Petroleum Aluminium Base Carbon Diamonds
Metals Steel and
Materials Specialty
Products
Year ended 30
June 2005
Revenue together
with share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 3,953 3,103 4,372 7,298 986
production
Sale of third 1,955 1,543 670 238 523
party product
Rendering of - - 1 34 -
services
Inter-segment 62 5 - 27 -
revenue
5,970 4,651 5,043 7,597 1,509
Less: share of (3) (80) (2,714) (429) (778)
jointly
controlled
entities"
revenue included
above
Segment revenue 5,967 4,571 2,329 7,168 731
Segment result 2,523 758 481 2,330 429
Other 6 26 - 2 19
attributable
income (1)
Share of profits - 139 1,285 148 77
from jointly
controlled
entities
Profit from 2,529 923 1,766 2,480 525
operations
Adjusted EBITDA 3,151 1,122 1,952 3,098 710
Other - (33) (318) (14)
significant non- 15
cash items
EBITDA 3,151 1,137 1,919 2,780 696
Depreciation and (616) (214) (153) (300) (171)
amortisation
Impairment (6)
losses - - - -
recognised
Reversals of - - - - -
previous
impairment
losses
recognised
Profit from 2,529 923 1,766 2,480 525
operations
Profit from 2,515 902 1,777 2,466 503
group production
Profit from 14 21 (11) 14 22
third party
product
Capital 898 268 345 1,063 239
expenditure
Segment assets 6,448 5,398 7,880 4,885 1,429
Investments in 112 509 1,633 336 115
jointly
controlled
entities
Total assets 6,560 5,907 9,513 5,221 1,544
Segment 1,955 745 2,240 1,903 162
liabilities
Continued...
US$ million Stainless Group and BHP
Energy Steel unallocated Billiton
Coal Materials items/ Group
eliminations
Year ended 30
June 2005
Revenue together
with share of
jointly
controlled
entities"
revenue from
external
customers
Sale of group 2,718 2,265 3 24,698
production
Sale of third 669 9 784 6,391
party product
Rendering of - - 26 61
services
Inter-segment - - (94) -
revenue
3,387 2,274 719 31,150
Less: share of (416) (8) - (4,428)
jointly
controlled
entities"
revenue included
above
Segment revenue 2,971 2,266 719 26,722
Segment result 319 828 (184) 7,484
Other 1 25 (79)
attributable -
income (1)
Share of profits 137 1 - 1,787
from jointly
controlled
entities
Profit from 457 854 (263) 9,271
operations
Net finance (331)
costs
Income tax (1,876)
expense
Royalty related (436)
taxation
Profit after 6,628
taxation
Adjusted EBITDA 740 1,014 (65) 11,722
Other (95) (19) (169) (633)
significant non-
cash items
EBITDA 645 995 (234) 11,089
Depreciation and (179) (141) (27) (1,801)
amortisation
Impairment (9) (2) (17)
losses -
recognised
Reversals of - - - -
previous
impairment
losses
recognised
Profit from 457 854 (263) 9,271
operations
Profit from 403 854 (263) 9,157
group production
Profit from 114
third party 54 - -
product
Capital 164 475 31 3,483
expenditure
Segment assets 2,359 4,377 5,813 38,589
Investments in 549 3,254
jointly - -
controlled
entities
Total assets 2,908 4,377 5,813 41,843
Segment 1,558 612 14,752 23,927
liabilities
(1) Other attributable income represents the re-allocation of certain items
recorded in the segment result of group & unallocated / eliminations to the
applicable CSG / business segment.
2 Exceptional items
Exceptional 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 year are detailed below.
Gross Tax Net
Year ended 30 June 2006 US$M US$M US$M
Exceptional items by category
Sale of Tintaya copper mine 439 143 296
Exceptional items by Customer
Sector Group
Base Metals 439 143 296
Sale of Tintaya copper mine
Effective 1 June 2006, BHP Billiton sold its interests in the Tintaya copper
mine in Peru. Gross consideration received was US$853 million, before deducting
intercompany trade balances. The net consideration of US$717 million (net of
transaction costs) included US$634 million for shares plus the assumption of
US$116 million of debt, working capital adjustments and deferred payments
contingent upon future copper prices and production volumes.
Gross Tax Net
Year ended 30 June 2005 US$M US$M US$M
Exceptional 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)
Exceptional items by Customer
Sector Group
Petroleum 134 (10) 124
Base Metals (29) (4) (33)
Carbon Steel Materials (285) 80 (205)
Energy Coal (73) 21 (52)
Stainless Steel Materials 142 (6) 136
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. 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. The total proceeds on the sale
were US$421 million, resulting in a profit before tax of US$127 million (US$1
million tax expense). In addition, the Group sold its interest in the Palmiet
chrome business in May 2005 for proceeds of US$12 million, resulting in a profit
before tax of US$15 million (US$5 million tax expense).
Provision for termination of operations
The Group decided to decommission the Boodarie Iron 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 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$4 million tax expense) in relation to other closed
mining operations.
3 Net finance costs
2006 2005
US$M US$M
Financial expenses:
Interest on bank loans and overdrafts 134 34
Interest on all other loans 382 254
Finance lease and hire purchase interest 6 6
522 294
Dividends on redeemable preference shares 17 25
Discounting on provisions and other liabilities 266 173
Discounting on pension and medical benefit 108 114
entitlements
Interest capitalised (a) (144) (78)
Net fair value change on hedged loans and related (30) -
hedging derivatives
739 528
Exchange differences on net debt (8) 19
731 547
Financial income:
Interest income (123) (118)
Return on pension plan assets (103) (98)
(226) (216)
Net finance costs 505 331
(a) Interest has been capitalised at the rate of interest applicable to the
specific borrowings financing the assets under construction or, where financed
through general borrowings, at a capitalisation rate representing the average
interest rate on such borrowings. For the year ended 30 June 2006 the
capitalisation rate was 5.0 per cent. (2005: 4.6 percent)
4 Taxation
2006 2005
Taxation expense including royalty related taxation US$M US$M
UK taxation expense 294 206
Australian taxation expense 2,547 1,613
Overseas taxation expense 791 493
Total taxation expense 3,632 2,312
5 Earnings per share
2006 2005
Basic earnings per share (US cents) 173.2 104.4
Diluted earnings per share (US cents) 172.4 104.0
Basic earnings per American Depositary Share (ADS) 346.4 208.8
(US cents) (a)
Diluted earnings per American Depositary Share 344.8 208.0
(ADS) (US cents) (a)
Basic earnings (US$ million) 10,450 6,396
Diluted earnings (US$ million) (b) 10,456 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:
2006 2005
Weighted average number of shares Million Million
Basic earnings per share denominator 6,035 6,124
Shares and options contingently issuable under 31 32
employee share ownership plans
Diluted earnings per share denominator 6,066 6,156
(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 (2005: US$3 million) that would not be made if
potential ordinary shares were converted to fully paid.
6 Dividends
2006 2005
US$M US$M
Dividends paid during the period
BHP Billiton Limited 1,148 842
BHP Billiton Plc - Ordinary shares 790 567
- Preference shares (a) - -
1,938 1,409
Dividends declared in respect of the period
BHP Billiton Limited 1,275 1,004
BHP Billiton Plc - Ordinary shares 885 691
- Preference shares (a) - -
2,160 1,695
2006 2005
US US
cents cents
Dividends paid during the period (per share)
Prior year final dividend 14.5 9.5
First interim dividend 17.5 13.5
32.0 23.0
Dividends declared in respect of the period (per
share)
Interim dividend 17.5 13.5
Final dividend 18.5 14.5
36.0 28.0
(a) 5.5 per cent dividend on 50,000 preference shares of GBP1 each (2005: 5.5
per cent).
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.
Subsequent to year end, on 23 August 2006, BHP Billiton declared a final
dividend of 18.5 US cents per share (US$1,100 million) which will be paid on 27
September 2006 (2005: 14.5 US cents per share- US$878 million).
Each American Depository Share (ADS) represents two ordinary shares of BHP
Billiton Limited or BHP Billiton Plc. Dividends declared on each ADS represent
twice the dividend declared on BHP Billiton shares.
BHP Billiton Limited dividends for all periods presented are, or will be, fully
franked based on a tax rate of 30%.
2006 2005
US$M US$M
Franking credits available for subsequent financial 831 328
years based upon a tax rate of 30% (i) (ii)
(i) The above amounts represent the balance of the BHP Billiton Limited franking
account as at the end of the financial year, adjusted for (a) franking credits
that will arise from the payment of the amount of the provision for income tax;
and (b) franking credits that will arise from the receipt of dividends
recognised as receivables at the reporting date.
(ii) The payment of the final 2006 dividend declared post reporting date will
reduce the franking account balance by US$285 million.
7 Investments accounted for using the equity method
Material shareholdings in jointly Ownership Contribution
controlled entities interest at to profit
BHP Billiton after taxation
Group
reporting
date (a)
30 30 30 30
June June June June
2006% 2005 2006US 2005
% $M US$M
Carbones del 33.3 33.3 97 111
Cerrejon LLC
Minera Antamina SA 33.75 33.75 437 194
Integris Metals Inc - - - 17
(b)
Samarco Mineracao 50 50 262 148
SA
Valesul Aluminio SA 45.5 45.5 8 9
(c)
Minera Escondida 57.5 57.5 2,595 1,090
Limitada
Mozal SARL 47.1 47.1 185 130
Other (d) N/A N/A 110 88
Total 3,694 1,787
(a) The ownership interest at the jointly controlled entities" reporting date
and BHP Billiton"s reporting date are the same.
(b) Effective January 2005, the BHP Billiton Group sold its interest in Integris
Metals Inc.
(c) Subsequent to 30 June 2006, the BHP Billiton Group sold its interest in
Valesul Aluminio SA.
(d) Includes immaterial jointly controlled entities and the Richards Bay
Minerals joint venture owned 50% (30 June 2005: 50%).
8 Total equity
2006 2005
US$M US$M
Total equity opening balance 17,916 14,743
Adjustment for adoption of IAS 39 / AASB 139 - 55 -
Retained earnings
- Hedging reserves 30 -
- Financial asset reserve 116 -
Total equity opening balance after adoption of IAS 18,117 14,743
39 / AASB 139
Changes in the statement of recognised income and 10,511 6,306
expense
Transactions with owners - contributed equity 24 56
Dividends (1,938) (1,409)
Accrued employee entitlement to share awards 61 53
Purchases of shares made by ESOP trusts (187) (47)
Cash settlement of share awards - (3)
Total changes in minority interests (104) (6)
BHP Billiton Plc share buy-back (a) (409) -
BHP Billiton Limited share buy-back (b) (1,620) (1,777)
Total equity closing balance 24,455 17,916
(a) On 16 May 2006, the BHP Billiton Group completed an on-market buy-back of
18,820,000 BHP Billiton Plc shares. All BHP Billiton Plc shares bought back are
held as Treasury shares within the share capital of BHP Billiton Plc and
resulted in a reduction in equity of US$409 million. The shares were repurchased
at an average price of GBP11.5356, representing a discount of 8.8 per cent to
the average BHP Billiton Limited share price between 27 April 2006 and 16 May
2006.
(b) On 3 April 2006, the BHP Billiton Group completed an off-market buy-back of
95,950,979 BHP Billiton Limited shares. As a result of the buy-back, total
equity decreased US$1,620 million. In accordance with the structure of the buy-
back, US$145 million was allocated to the share capital of BHP Billiton Limited
and US$1,475 million was allocated to retained earnings. These shares were then
cancelled. The final price for the buy-back was A$23.45 per share, representing
a discount of 14 per cent to the volume weighted average price of BHP Billiton
Limited shares over the five days up to and including the closing date of the
buy-back.
On 23 November 2004, the BHP Billiton Group completed an off-market share buy-
back of 180,716,428 BHP Billiton Limited shares. As a result of the buy-back,
total equity decreased by US$1,777 million. In accordance with the structure of
the buy-back, US$296 million was allocated to the share capital of BHP Billiton
Limited and US$1,481 million was allocated to retained profits. The final price
for the buy-back was A$12.57 per share, representing a discount of 12 per cent
to the volume weighted average price of BHP Billiton Limited shares over the
five days up to and including the closing date of the buy-back.
9 Subsequent events
Subsequent to 30 June 2006, the sale of BHP Billiton"s 45.5% joint venture
interest in Valesul Aluminio SA, an aluminium smelter, the sale of Southern
Cross Fertilisers Pty Ltd, a fertiliser mining and processing business, the sale
of the Cascade and Chinook oil and gas prospects, and the sale of the Coal Bed
Methane assets have been finalised. These assets are classified as held for
sale as at 30 June 2006. The financial effects of these transactions have not
been brought to account at 30 June 2006.
10 Transition to International Financial Reporting Standards
The accounting policies set out in this financial information have been applied
for the years ended 30 June 2006 and 2005, and in the preparation of an opening
IFRS balance sheet at 1 July 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. Because of the DLC structure, the preparation of IFRS
financial statements for the BHP Billiton Group requires transition from the two
different predecessor GAAPs of BHP Billiton Limited (which reported under
Australian GAAP) and BHP Billiton Plc (which reported under UK GAAP). Where
necessary, Australian GAAP has been chosen as the reference predecessor GAAP
from which to base transition adjustments.
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 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
"Income Taxes" 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.
10 Transition to International Financial Reporting Standards continued
The following table presents a summary of the impact of IFRS on net equity as at
30 June 2005 and 1 July 2004.
Reconciliation of net equity
UKGAAP Australian GAAP
Note As at As at As at As at
30 June 1 July 30 June 1 July 2004
2005 2004 2005
US$M US$M US$M US$M
Net equity as previously 17,489 14,380 18,364 15,425
reported under UK and Australian
GAAP
IAS 19 / AASB 119 Post- a (650) (527) (650) (527)
retirement pension obligations -
pre tax
IAS 19 / AASB 119 Post- a 158 135 158 135
retirement pension obligations -
deferred tax effect
IAS 19 / AASB 119 Post- a (111) (76) (111) (76)
retirement medical benefits -
pre tax
IAS 19 / AASB 119 Post- a 30 21 30 21
retirement medical benefits -
deferred tax effect
IAS 12 / AASB 112 Deferred b (226) (202) 36 (267)
income tax accounting
IAS 12 / AASB 112 Remeasurement b 32 30 32 30
of royalties as income taxes
IFRS 3 / AASB 3 Reinstatement of c 354 388 41 -
goodwill
IAS 10 / AASB 110 Reversal of d 878 592 - -
dividend payable
IFRS 2 / AASB 2 Equity based 16 2 16 2
compensation payments to e
employees - tax effect
IFRS 3 / AASB 3 Business c (54) - - -
combinations - WMC acquisition
Net equity in accordance with 17,916 14,743 17,916 14,743
IFRS
Overall net increase in equity 427 363 (448) (682)
under IFRS
The following table presents a summary of the impact of IFRS on investments in
jointly controlled entities as at 30 June 2005 and 1 July 2004.
Reconciliation of investments in jointly controlled entities - UK and Australian
GAAP
Note As at As at
30 June 1 July
2005 2004
US$M US$M
Investments in jointly controlled entities as 1,525 1,369
previously reported under UK and Australian
GAAP
Impact on investments in jointly controlled
entities of adjustments to reclassify assets
and liabilities previously accounted for by
proportional consolidation:
Current assets 623 507
Non-current assets 2,687 2,425
Current liabilities (374) (505)
Non-current liabilities (1,184) (1,196)
Increase in investments in jointly controlled f 1,752 1,231
entities in applying the equity method of
accounting
Other IFRS and acquisition accounting (23) (7)
adjustments
Investments in jointly controlled entities in 3,254 2,593
accordance with IFRS
10 Transition to International Financial Reporting Standards continued
The following tables present a summary of the impact of IFRS on profit after tax
for the year ended 30 June 2005.
Reconciliation of profit after tax
Note UKGAAP Austral
ian
GAAP
Year Year
ended ended
30 June 30 June
2005 2005
US$M US$M
Net Profit after tax as previously reported 6,630 6,241
under UK and Australian GAAP
Pre Tax IFRS adjustments:
IAS 19 / AASB 119 Post-retirement medical and a (8) (8)
pension obligations
IAS 12 / AASB 112 Deferred tax effects within b (6) (6)
jointly controlled entities
IFRS 3 / AASB 3 Reversal of amortisation of c 2 44
goodwill
IFRS 2 / AASB 2 Equity based compensation e 56 56
payments to employees
Adjustment to goodwill included in the net c 31 (3)
book value of the disposed Chrome operations
IFRS 3 / AASB 3 Business combinations - WMC c (54) -
acquisition
IAS 31 / AASB 131 Reclassification of jointly f (197) -
controlled entity tax expense to profit
before tax - previously equity accounted
IAS 31 / AASB 131 Reclassification of jointly (230) (230)
controlled entity tax expense to profit f
before tax - previously proportionately
consolidated
IAS 12 / AASB 112 Deferred tax on the b 3 3
disposed Chrome operations
IAS 12 / AASB 112 Reclassification of g 603 603
royalties which are accounted for as income
taxes
Other (1) -
Tax IFRS adjustments:
IAS 12 / AASB 112 Recognition of prior year b - 350
tax losses
IAS 12 / AASB 112 Withholding and b (10) (10)
repatriation taxes
IAS 12 / AASB 112 Additional foreign exchange b (40) (46)
variations
IAS 12 / AASB 112 Non-tax depreciable items b 31 31
now tax-effected
IAS 12 / AASB 112 Tax base resets under b 17 -
Australian tax consolidations
IFRS 2 / AASB 2 Equity based compensation e (12) (12)
payments to employees
IAS 31 / AASB 131 Reclassification of jointly f 197 -
controlled entity tax expense to profit
before tax - previously equity accounted
IAS 31 / AASB 131 Reclassification of jointly 230 230
controlled entity tax expense to profit f
before tax - previously proportionately
consolidated
IAS 19 / AASB 119 Post-retirement medical and a 3 3
pension benefits - tax impact
IAS 12 / AASB 112 Reclassification of g (603) (603)
royalties which are accounted for as income
taxes
IAS 12 / AASB 112 Remeasurement of royalties g 2 2
as income taxes
Other (16) (17)
Net profit after tax in accordance with IFRS 6,628 6,628
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:
UK GAAP to IFRS Australian GAAP to IFRS
30 June 1 Jul 2004 30 June 1 Jul 2004
2005 2005
Tax asset / Tax asset / Tax asset / Tax asset /
(provision) (provision) (provision) (provision)
US$M US$M US$M US$M
Deferred tax on non (309) (321) (309) (321)
depreciable assets acquired
in business combinations
Tax base resets under 188 165 - -
Australian tax
consolidations
Foreign exchange movements 434 216 434 216
- tax base of non-monetary
assets
Foreign exchange movements (516) (255) (516) (255)
- USD debt
Withholding taxes (10) - (10) -
Adoption of IAS 12 to (13) (7) (13) (7)
jointly controlled entities
Remeasurement of royalties 32 30 32 30
as income taxes
Recognition of tax losses - - 450 100
(Increase) / decrease in (194) (172) 68 (237)
net deferred tax liability
10 Transition to International Financial Reporting Standards continued
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 in accordance with previous GAAP.
The reclassification of goodwill was required because the IFRS accounting for
past business combinations is determined from the previous basis of accounting
applied by the Group under previous Australian GAAP which has been chosen as the
reference predecessor GAAP for these purposes.
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. In addition, the change in the tax base
over time is reflected directly in equity.
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.
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.
END
Date: 23/08/2006 08:01:55 AM Produced by the JSE SENS Department
