| Wed 7 Feb 2007, 9:30 | | BIL - BHP Billiton Plc - Results for the half year |
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BIL
BIBLT
BIL - BHP Billiton Plc - Results for the half year ended 31 December 2006
BHP Billiton Plc
Share Code: BIL
ISIN: GB0000566504
BHP BILLITON RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2006
* Records for all key earnings measures including Underlying EBITDA up
32% to US$10.5 billion and Underlying EBIT up 37% to US$9.1 billion.
* Attributable profit up 41% to US$6.2 billion and EPS up 44%, benefiting
from ongoing buy-backs.
* Underlying EBIT margin(1) and Return on Capital Employed increased to
47% and 37% respectively.
* Half year production records for aluminium, alumina, copper cathode,
iron ore, manganese ore and molybdenum from continuing operations.
* While costs remain a challenge, the rate of increase has continued to
slow.
* Current project pipeline includes 29 projects in execution or
feasibility comprising US$17.5 billion of investment.
* Interim dividend of 20.0 US cents per share, an increase of 14% on last
year`s interim dividend and the tenth consecutive dividend increase.
* Capital return increased by US$10.0 billion representing 9.1%(2) of
capital. This is in addition to the US$1.3 billion remaining from the
program announced in August 2006.
* An outstanding half year result, underpinned by robust demand, solid
production and a focus on business excellence.
Half Year ended 31 December 2006 2005
US$M US$M Change
Revenue together with share of 22,113 18,080 22.3%
jointly controlled entities`
revenue
Underlying EBITDA (3) 10,494 7,971 31.7%
Underlying EBIT (3) (4) 9,134 6,671 36.9%
EBIT - Profit from operations 8,519 6,259 36.1%
Attributable profit 6,168 4,364 41.3%
Net operating cash flow (5) 7,018 4,308 62.9%
Basic earnings per share (US cents) 103.9 72.1 44.1%
Underlying EBITDA interest coverage 46.7 41.2 13.3%
(times) (3) (6)
Dividend per share (US cents) 20.0 17.5 14.3%
Refer to page 14 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 half year ended
31 December 2005.
RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2006
Commentary on the Group Results
Record half year results
Robust demand, strong product prices and solid production underpins
today`s record result. Our attributable profit of US$6.2 billion
represents an increase of 41.3 per cent over the corresponding period and
is the seventh consecutive record half year result. The quality of our
portfolio and the strong product demand are evident with seven of our
nine Customer Sector Groups (CSGs)(7) recording increases in Underlying
EBIT over the comparative period.
We achieved production records (from continuing operations) for five
major and one minor commodity during the half year and ten of our assets
set production records. This reflects our key operating objective of
delivering consistent, predictable and sustainable operating performance
across all of our businesses.
Our Underlying EBIT of US$9.1 billion is an increase of 36.9 per cent
over the first half of FY06. Underlying EBIT margins rose to 47.4 per
cent, from 41.9 per cent in the corresponding period while return on
Capital Employed increased from 31.2 per cent to 36.5 per cent. The
environment in which we operate continues to be challenging. However, our
recruitment and procurement strategies that leverage off our scale and
geographic diversity and our Business Excellence program, which is
sourcing and replicating best practice from our extensive asset base, are
contributing to a continued reduction in the rate of cost increase. Our
activities are becoming more geographically diverse and our Business
Excellence program has graduated to its next level of maturity.
Investing in the future
Our project pipeline continues to grow with a number of organic growth
options progressing to the feasibility phase and the acquisition of the
Genghis Khan oil field in the Gulf of Mexico. We now have 29 projects in
either execution or feasibility with an expected budget of US$17.5
billion. The majority of our projects under development continue to track
to schedule. Cost pressures resulting from the shortage of labour,
equipment and other input costs remain, but recently reassessed projects
remain on cost and schedule. During the period production from the Spence
copper cathode project in Chile commenced ahead of schedule while the
Escondida Sulphide Leach (copper), Worsley DCP (alumina) and Rapid Growth
2 (iron ore) projects continued to ramp up to full capacity.
We are committed to creating value added options in our portfolio to
provide the next generation of growth opportunities beyond our current
project pipeline. During the period we have opened corporate offices in
Guinea and the Democratic Republic of Congo, building on our already
significant exploration and project assessment activities in these
countries. We also entered into an exclusive agreement with Global
Alumina relating to the development of an alumina refinery in Guinea and
we announced the acquisition of the Genghis Khan oil field, which is
adjacent to our Shenzi development. We have a track record of sustainable
long term partnerships that deliver in-country expansion and reinvestment
bringing long term prosperity to all stakeholders, including local
communities and the governments.
The quality of our assets and the diversity of our portfolio underpin the
strength of our cash flow and continues to support our ability to both
identify and invest in growth opportunities while continuing to deliver
outstanding returns to shareholders.
Dividend and Capital Management
The Board today declared an interim dividend of 20.0 US cents per share.
This represents a 14.3 per cent increase over last year`s interim
dividend of 17.5 US cents per share. This is our tenth consecutive
dividend increase and also means that today`s dividend has increased more
than threefold since the interim dividend paid in 2002. We will continue
with our progressive dividend policy, with further increases dependent
upon the expectations for future investment opportunities and market
conditions.
We are announcing today an increase of US$10 billion to the US$1.3
billion remaining from the capital initiative announced in August 2006.
This amount will be returned to shareholders over the next 18 months
through a series of share buy-backs. Since August 2006 US$1.7 billion has
been returned to shareholders through on-market purchases of 92,285,000
BHP Billiton Plc (Plc) shares (at an approximate price of US$18.23, being
a 8.9 per cent discount to the price of our Limited stock).
We are commencing the first stage in this return immediately with an off-
market buy-back of BHP Billiton Limited (Ltd) stock (see separate
announcement). This program will begin immediately with a targeted
maximum size of around A$3.25 billion (US$2.5 billion). We expect the on-
market buy-back of Plc shares will continue during the off-market
process.
Today`s announcement brings the total capital management programs
announced since August 2004 to US$17 billion. To date 388 million shares
have been repurchased, representing approximately 6.6 per cent of the
total shares on issue at an approximate price of US$14.11 (A$18.68 / GBP
7.56).
On completion of today`s announced program BHP Billiton will have
repurchased approximately 16.9 per cent of the shares on issue since
November 2004(8) and will have returned US$26.6 billion in total to
shareholders through capital initiatives and dividends since June 2001.
The Income Statement
To provide clarity into the underlying performance of our operations, we
present Underlying EBIT which is a measure used internally and in our
Supplementary Information. Underlying EBIT excludes all net finance costs
and taxation, including net finance costs and taxation of jointly
controlled entities. The differences between Underlying EBIT and EBIT
(Profit from operations) are set out in the following table:
Half Year ended 31 December 2006 2005
US$M US$M
Underlying EBIT 9,134 6,671
Impact of equity accounting for statutory purposes:
Share of jointly controlled entities` net finance costs (79) (60)
Share of jointly controlled entities` total taxation (536) (352)
expense
EBIT - Profit from operations 8,519 6,259
Earnings
The following table and commentary describes the approximate impact of
the principal factors that affected Underlying EBIT for the half year
ended 31 December 2006 compared with the corresponding half year period:
US$ Million
Underlying EBIT for the half year ended 31 December 6,671
2005
Change in volumes:
Increase in volumes 385
Decrease in volumes (330)
55
Net price impact
Change in sales prices 3,940
Price-linked costs (515)
3,425
Change in costs:
Costs (rate and usage) (530)
Exchange rates (175)
Inflation on costs (200)
(905)
Asset sales (40)
Ceased and sold operations (45)
Exploration (50)
Other 23
Underlying EBIT for the half year ended 31 December 9,134
2006
Volumes
Strong demand drove increased sales volumes of metallurgical coal,
manganese ore, petroleum products, iron ore, nickel, alumina, molybdenum,
energy coal and, from some operations, copper and contributed
approximately US$385 million more to Underlying EBIT (measured at the
corresponding period`s average margins) than for the corresponding
period. Overall sales volumes of base metals were lower than the prior
year, due largely to the industrial disruptions at Escondida (Chile), a
smelter shutdown at Olympic Dam (Australia) and the temporary closure of
the southern zone at Cannington (Australia). We experienced lower grade
diamond production at Ekati (Canada) as it transitions from an open-cut
to an underground operation which led to a decrease in diamond sales for
the period. The comparative period also included diamond sales from
inventory.
Prices
Stronger commodity prices for most products increased Underlying EBIT by
US$3,940 million. Higher prices for nickel, copper, aluminium, iron ore,
petroleum products, zinc, alumina, energy coal, silver, lead, manganese
alloy and diamonds contributed approximately US$4,208 million, which was
partially offset by lower prices for metallurgical coal and manganese
ore.
Higher price-linked costs reduced Underlying EBIT by US$515 million,
arising largely from higher charges for third party ore in Stainless
Steel Materials, royalties for nickel, oil and gas and iron ore,
increased copper treatment and refining charges (TCRCs), price
participation, higher earnings linked costs at Antamina (Peru) and higher
LME linked power charges in Aluminium.
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$530 million. Excluding non cash costs, this
represents an increase on our December 2005 half year total cost base of
5.1 per cent.
Specific areas of cost increases include changed mining conditions
particularly at Ekati where we are mining a lower grade zone and higher
strip ratios at Queensland Coal (Australia). Labour and contractor
charges, consumables and fuels, business development expenditure,
maintenance and other operating costs have also increased. However, the
Group generated savings of 1.7 per cent on our December 2005 half year
cost base through a wide range of business improvement initiatives across
the Group.
The rate of increase in costs across our business has slowed. Although
this is a positive sign, the current environment continues to be
challenging and the pressure on access to labour and other inputs to our
business has not lessened.
Exchange rates
Exchange rate movements had a negative impact on Underlying EBIT of
US$175 million. A stronger Australian dollar had a negative impact on
both operating costs and also the translation of monetary items into US
dollars. This was only partially offset by the favourable impact of a
weaker South African rand on operating costs for our South African
businesses.
The following exchange rates against the US dollar have been applied:
Half year Half year
ended 31 ended 31 31 Dec 30 June 31 Dec
Dec 2006 Dec 2005 2006 2006 2005
average average closing closing closing
Australian 0.76 0.75 0.79 0.74 0.73
dollar (a)
South African 7.23 6.52 7.00 7.12 6.33
rand
(a) Displayed as US$ to A$1 based on common convention.
Inflation on costs
Inflationary pressures on input costs across all of our businesses had an
unfavourable impact on Underlying EBIT of US$200 million.
Asset Sales
The impact from the sale of assets and interests on Underlying EBIT was
US$40 million lower than the corresponding period. The impact amounted
to US$70 million for the current period, principally related to the sale
of our Moranbah Coal Bed Methane assets (Australia), our interest in
Eyesizwe (South Africa) and Alliance Copper (Chile). This compared to
higher profits in the corresponding period arising largely from the
divestment of our interest in the Wonderkop chrome joint venture (South
Africa) and the Green Canyon oil fields (US).
Ceased and sold operations
Ceased and sold operations had a US$45 million unfavourable impact on
Underlying EBIT. The current period was negatively impacted by the loss
of US$134 million of earnings from Tintaya (Peru) (divested in June 2006)
and the Southern Cross Fertiliser operations (Australia) (divested in
August 2006). This was partly offset by the US$96 million favourable
impact due to investigation and salvage costs for Typhoon/Boris (US) that
were included in the corresponding period.
Exploration
Exploration expense was US$50 million higher than the corresponding
period and relates mainly to a US$43 million current period write-off of
Petroleum expenditure that had previously been capitalised and increased
expenditure at Maruwai (Indonesia).
Other
Other items increased Underlying EBIT by US$23 million. These included
higher insurance recoveries than the corresponding period partially
offset by a lower contribution from freight activities.
Net finance costs
Net finance costs increased to US$222 million, from US$215 million in the
corresponding period. This was driven predominantly by a higher average
interest rate but was partially offset by higher capitalised interest and
lower average debt levels.
Taxation expense
The total taxation expense on profit before tax was US$2,097 million,
representing an effective rate of 25.3 per cent.
Excluding the impacts of 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
30.2 per cent. When compared to the UK and Australian statutory tax rate
(30 per cent), the underlying effective tax rate included a benefit of
1.6 per cent due to the recognition of prior year US tax benefits (US$140
million). Royalty-related taxation represents an effective rate of 2.5
per cent for the current period.
Cash Flows
Net operating cash flow after interest and tax increased by 62.9 per cent
to US$7.0 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$3,396 million for the
period. Expenditure on major growth projects was US$2,476 million,
including US$706 million on petroleum projects and US$1,770 million on
minerals projects. Other capital expenditure on maintenance, sustaining
and minor capital items was US$616 million. Financing cash flows include
US$2.5 billion in relation to the capital management program and
increased dividend payments.
Net debt, comprising cash and interest-bearing liabilities, was US$7.2
billion, a decrease of US$1.0 billion, or 12.5 per cent, compared to 30
June 2006. Gearing, which is the ratio of net debt to net debt plus net
assets, was 20.3 per cent at 31 December 2006, compared with 25.2 per
cent at 30 June 2006.
Underlying net debt (which varies from net debt above as it includes net
debt of jointly controlled entities) was US$8.5 billion down from US$9.2
billion at 30 June 2006. Underlying gearing was 23.1 per cent at 31
December 2006 compared to 27.2 per cent at 30 June 2006.
Dividend
An interim dividend for the half year ended 31 December 2006 of 20.0 US
cents per share will be paid to shareholders on 20 March 2007.
The dividend paid by Ltd will be fully franked for Australian taxation
purposes. Dividends for the BHP Billiton Group are determined and
declared in US dollars. However, Ltd dividends are paid mainly in
Australian dollars. Plc dividends are paid mainly in pounds sterling to
shareholders on the UK section of the register and South African rands to
shareholders on the South African section of the register. 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 date 5 February 2007
Last day to trade cum dividend on JSE Limited (JSE) 23 February 2007
Ex-dividend Australian Securities Exchange (ASX) 26 February 2007
Ex-dividend Johannesburg Stock Exchange (JSE) 26 February 2007
Ex-dividend London Stock Exchange (LSE) 28 February 2007
Ex-dividend New York Stock Exchange (NYSE) 28 February 2007
Record date 2 March 2007
Payment date 20 March 2007
American Depositary Receipts (ADRs) each represent two fully paid
ordinary shares and receive dividends accordingly.
Plc shareholders registered on the South African section of the register
will not be able to dematerialise or rematerialise their shareholdings,
and transfers between the UK register and the South African register will
not be permitted between the dates of 26 February 2007 and 2 March 2007.
The following table details the currency exchange rates applicable for
the dividend:
Dividend 20.0 US cents Exchange Rate Dividend per ordinary
share in local currency
Australian cents 0.774851 25.811414
British pence 1.958223 10.213341
South African cents 7.238158 144.763160
New Zealand cents 0.682000 29.325513
Portfolio Management
Portfolio activities continued during the period with proceeds amounting
to US$326 million. We disposed of a number of assets and interests
including the Southern Cross Fertiliser operations, the Moranbah Coal Bed
Methane assets, the Cascade and Chinook oil prospects (US), the interest
in the Valesul aluminium smelter (Brazil) and the interest in Eyesizwe.
Proceeds realised from the sale or distribution of our assets and
interests over the last five and a half years now totals approximately
US$6 billion.
At 31 December 2006 we had announced the sale of our Koornfontein energy
coal mine (South Africa).
We also announced the acquisition of an interest in the Genghis Khan oil
field for US$583 million during the period. The transaction closed on 1
February 2007.
Liquidity
In October 2006 the Group signed a new US$3.0 billion multi-currency
revolving credit facility. This new credit facility, which expires in
October 2011, replaces the previous US$3.0 billion credit facility that
was due to expire in 2009. The finance facility that was put in place for
the acquisition of WMC Resources Ltd has been fully repaid.
Corporate Governance
The following Board changes occurred during the period:
* 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 elected to the Board at the Plc and Ltd
Annual General Meetings in October and November 2006 respectively; and
* Mr Paul Anderson and Mr Jacques Nasser were appointed Non-executive
Directors from 6 June 2006 and elected to the Board at the Plc and Ltd
Annual General Meetings.
* On 1 August 2006, Mr Miklos Salamon announced his intention to retire
from the Board and Company effective from 26 October 2006. He retired
from the Boards of Ltd and Plc at the Annual General Meeting of Plc.
During January 2007, 67,285,000 Plc shares which were purchased by Ltd,
were cancelled and 2,400,862,002 Plc shares remained on issue (including
Treasury shares and shares purchased by Ltd in Plc).
Outlook
Global Economic Outlook
The outlook for the global economy remains encouraging with continued GDP
growth in China, strong performance in Europe and improving confidence in
the US. A healthy corporate sector, accommodative monetary policies and
ample liquidity continue to provide support. Falling oil prices have also
brought some relief to inflation levels and have assisted in improving
sentiment in oil-importing countries. Tight labour market conditions and
falling unemployment rates continue in a number of regions.
Asian economies continue to expand at a solid pace. China`s GDP growth
was 10.7 per cent in 2006. This is the fourth consecutive year that
China`s real GDP growth has exceeded 10 per cent. We have seen evidence
that recent government tightening of liquidity and investment controls
are moderating growth but expansion will continue. India is maintaining
robust growth momentum, even as it continues to wrestle with economic
reforms. Although Japan has recently experienced slower economic growth,
business investment and external demand remains robust. Growth in the US
has moderated from exceptionally strong levels a year ago. This is
reflected in the progressive slowdown in its domestic housing and
construction sectors. While global industrial activity has been slowing,
it is being cushioned by strength in final demand growth in Western
Europe and developing economies.
In the short-term, we expect global growth to moderate, but the economic
outlook remains healthy. Growth in Asia is likely to persist although we
expect further dampening in China`s economic growth due to the momentum
of its recent cooling. While we expect growth for the US economy to be
below the rate in 2006, a soft landing in the housing sector, strong
capital investment and an easing of energy prices should result in a
growth rate consistent with long term trends. Strong economic activity in
Western Europe and an improvement in Japan`s economic outlook should
lessen the impact of any slowdown in the US.
Commodity Outlook
In 2006 real annual average prices for copper, zinc, iron ore, coking
coal, thermal coal, crude oil, natural gas and uranium reached their
highest levels since the 1970s. Aluminium, nickel and lead also passed
15 to 20 year annual average peaks. Strong global demand growth coupled
with low inventories were supportive of high prices, although investment
interest also exerted an influence. World consumption of the major non-
ferrous metals rose by five to ten per cent in 2006 while use of finished
steel also grew strongly. Supply also accelerated, but notwithstanding
this, most commodities remained in deficit. Combined LME warehouse
inventories of primary metal continue to remain at historically low
levels. Overall stock-to-consumption ratios are at their lowest levels in
more than 30 years, and there may be limits to further consumer de-
stocking in many sectors.
Market indicators do not point to large scale supply surpluses emerging
in 2007, although demand growth can be expected to vary regionally in
line with varying economic activity. China is set to continue as the
main driver of demand, but more mature markets may also lend support,
especially Europe and Japan. Despite the expansion of China`s domestic
production base, imports of commodities will continue to play a crucial
role in supporting the country`s industrialisation.
While we expect a constructive environment, the path of the US economy is
uncertain. Although the US economy will continue to have an important
impact on the global economy, it is increasingly clear that improved
economic conditions in other OECD countries and the increased relevance
of emerging economies is decreasing the global impact of US economic
activity. As a result the global impact of a slow down in the US is
expected to be lower than generally assumed and we do not anticipate a
return of prices to longer run averages over the medium term.
CUSTOMER SECTOR GROUP SUMMARY
The following table provides a summary of the Customer Sector Group
results for the six months ended 31 December 2006 and the corresponding
period.
Half year ended 31 Revenue together with Underlying EBIT (1)
December share of jointly
(US$ Million) controlled entities`
revenues (1)
2006 2005 Change % 2006 2005 Change %
Petroleum 2,958 2,668 10.9 1,612 1,436 12.3
Aluminium 2,828 2,252 25.6 840 406 106.9
Base Metals 5,644 4,031 40.0 2,905 1,893 53.5
Diamonds and 393 679 (42.1) 105 261 (59.8)
Specialty Products
Stainless Steel 2,805 1,358 106.6 1,436 374 284.0
Materials
Iron Ore 2,749 2,323 18.3 1,406 1,243 13.1
Manganese 575 499 15.2 105 85 23.5
Metallurgical Coal 1,833 1,906 (3.8) 659 947 (30.4)
Energy Coal 2,321 2,061 12.6 243 205 18.5
Group and 304 352 (13.4) (177) (179) N/A
unallocated items
(2)
Less: inter- (297) (49) N/A - -
segment turnover
BHP Billiton Group 22,113 18,080 9,134 6,671
(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 14.
(2) Includes consolidation adjustments, exploration and technology
activities, unallocated items and external sales from the Group`s
freight, transport and logistics operations.
Petroleum
Underlying EBIT was US$1,612 million, an increase of US$176 million or
12.3 per cent, compared with the same period last year. This was due
mainly to higher average realised prices for most petroleum products,
with higher average realised oil prices per barrel of US$63.77 (compared
with US$58.25), higher average realised natural gas prices of US$3.27 per
thousand standard cubic feet (compared with US$3.13) and higher average
realised liquefied natural gas prices of US$7.44 per thousand standard
cubic feet (compared to US$6.81). Higher sales volumes due to timing of
liftings more than offset slightly lower overall production volumes due
to natural field decline and the September 2005 hurricane-related loss of
the Typhoon (US) platform. Royalty and excise taxes were higher in line
with higher revenue.
Exploration expenditure charged to profit of US$154 million
(corresponding period: US$123 million) included the additional write-off
of US$43 million of previously capitalised expenditure. Gross expenditure
on exploration of US$159 million was US$92 million lower than the
corresponding period as a result of the timing of spending on exploration
and appraisal drilling activity in the Gulf of Mexico.
Non Ferrous Materials
Aluminium
Underlying EBIT was US$840 million, an increase of US$434 million or
106.9 per cent compared with the same period last year. Higher prices for
aluminium and alumina had a favourable impact, with the average LME
aluminium price increasing to US$2,602 per tonne (compared with US$1,952
per tonne). Half year production records at Worsley (Australia), Paranam
(Suriname), Hillside, Bayside and Mozal (all Southern Africa) also
contributed to this result. Exchange rate movements during the period
also had a favourable impact on EBIT.
Earnings were adversely impacted by higher charges for price linked
costs, largely LME linked power. Raw materials and labour costs were also
higher, as were depreciation charges associated with new mines in
Suriname and the commissioning of the Worsley expansion.
Despite higher costs in some areas, a focus on cost containment and
business improvement initiatives achieved success.
Base Metals
Underlying EBIT was US$2,905 million, an increase of US$1,012 million or
53.5 per cent, over the same period last year. This increase was
predominantly attributable to higher average LME prices for copper of
US$3.34/lb (compared to US$1.84/lb) as well as higher prices for silver,
zinc, lead and gold. Record copper cathode production was achieved due to
the ramp up of the Sulphide Leach Project (Chile) and a higher production
level at Cerro Colorado (Chile) following successful recovery from the
earthquake interruption in the corresponding period. This was offset by
reduced copper concentrate volumes due to the industrial disruption at
Escondida, lower volumes at Olympic Dam because of a scheduled smelter
shutdown and lower volumes at Cannington as the rehabilitation of ground
support progressed.
Higher price-linked TCRCs (mainly price participation), labour and
contractor costs (due largely to one-off bonuses at Escondida from the
recent union negotiations), Cannington rehabilitation expenditure, the
effect of inflation and a stronger A$/US$ exchange rate on costs for
Australian operations had a negative impact. These higher costs were
mitigated to some extent by cost savings achieved through improvement
projects. The cessation of earnings following the sale of Tintaya (Peru)
in June 2006 also reduced EBIT.
Provisional pricing of copper shipments impacted finalised and
outstanding average copper revenues resulting in the calculated average
realised price being US$0.18/lb below the LME average. The negative
finalisation adjustment and provisional pricing impact for the period was
US$220 million. Average copper revenue for the half year ended December
2006 was US$3.13/lb versus US$2.06/lb for the same period last year.
Outstanding copper volumes, subject to the fair value measurement,
amounted to 205,129 tonnes at 31 December 2006. These were revalued at a
weighted average price of US$2.87/lb.
Diamonds and Specialty Products
Underlying EBIT was US$105 million, a decrease of US$156 million or 59.8
per cent from the same period last year. This was due to higher sales
volumes of diamonds in the corresponding period from inventory sales and
higher unit costs in relation to the processing of lower grade material
and moving to underground mining areas at Ekati. In addition, the
corresponding period included earnings from Southern Cross Fertiliser
operations which was sold effective 1 August 2006. This was partially
offset by higher value per carat diamonds and a reduced depreciation
charge, primarily because of an extension of mine life following approval
of the Koala Underground project.
At Ekati, the 2007 financial year will continue to be negatively impacted
by lower value diamond production. Over the next few years, increasing
underground production will help reverse this trend.
Stainless Steel Materials
Underlying EBIT was a record US$1,436 million, an increase of US$1,062
million or 284.0 per cent compared with the same period last year. Higher
nickel and cobalt prices were the main contributors with an average LME
nickel price of US$13.81/lb compared with US$6.17/lb in the comparative
period. The higher prices (net of price linked costs) added US$1,217
million to underlying EBIT. Additionally, Yabulu (Australia) and Cerro
Matoso (Colombia) benefited from higher volumes in the current period.
This was partially offset by higher mining costs at Mount Keith and
Leinster (both Australia). The corresponding period also included a US$61
million profit on the sale of BHP Billiton`s interest in the Wonderkop
joint venture.
Carbon Steel Materials
Iron Ore
Underlying EBIT was US$1,406 million up US$163 million or 13.1 per cent
from the same period last year. This was driven mainly by increased
prices (which were approximately 17 per cent higher across the total
product range, net of a lower negotiated price for iron pellets).
Sales volumes were also six per cent higher reflecting record production
levels at Western Australia Iron Ore (Australia) (WAIO) and a number of
business improvement initiatives implemented to promote increased
shipping efficiency. Production was also higher at Samarco (Brazil).
Higher operating costs had an adverse impact during the period and were
largely attributable to higher contractor and labour costs, price-linked
royalties and fuel costs. A stronger A$/US$ exchange rate had an
unfavourable impact, as did inflationary pressures on the Australian
operations.
Depreciation was also higher due to the commissioning of expanded
capacity at WAIO.
Manganese
Underlying EBIT was US$105 million, an increase of US$20 million or 23.5
per cent compared to the same period last year. Stronger demand for
manganese ore drove increased sales volumes and consequently record
volumes of ore and higher volumes of alloy were produced for the half
year. The favourable movement of the rand against the US dollar also
contributed to this positive result.
Lower prices for ore had an unfavourable impact but were partially offset
by improved alloy prices.
Metallurgical Coal
Underlying EBIT was US$659 million, a decrease of US$288 million or 30.4
per cent from the same period last year. This was attributable mostly to
lower prices for all products at Queensland Coal where benchmark prices
will again decrease for the 12 months commencing April 2007. Operating
costs rose due to the first longwall change out at the Broadmeadow mine
(Australia), which was commissioned during 2006 and higher strip ratios
at open cut mines. A stronger A$/US$ exchange rate had an unfavourable
impact as did Australian inflationary pressures. This was offset
partially by increased production and sales at both Queensland Coal and
Illawarra Coal (Australia). The ramp up of expanded capacity supported by
increased throughput at our Hay Point Coal terminal contributed to the
higher sales at Queensland Coal.
As new projects ramped up depreciation and amortisation charges
increased, as did exploration expenditure to support a higher level of
activity at Maruwai (Indonesia).
Energy Coal
Underlying EBIT was US$243 million, an increase of US$38 million or 18.5
per cent, from the same period last year. The increase was mainly because
of higher export prices for product from our South African coal
operations as a result of continued strong demand. The favourable
movement of the rand against the US dollar also contributed to this
positive result. Higher production volumes and cost efficiencies at
Hunter Valley Coal (Australia) and Cerrejon Coal (Colombia) had a
favourable impact.
Operating unit costs were higher at New Mexico (US) due to difficult
mining conditions and equipment outages that impacted production. At our
South African coal operations unit costs were adversely affected by
inflationary pressure and lower production because of safety
interventions.
The cessation of earnings from the Zululand Anthracite Colliery (South
Africa) following its divestment during the prior year had a negative
impact, while a profit on the divestment of Eyesizwe during the period
had a favourable impact.
Group and Unallocated Items
Underlying net corporate operating costs, excluding exchange impacts,
were US$80 million compared to US$108 million in the corresponding
period, a decrease of US$28 million.
The current period benefited from lower insurance claims, offset by
higher costs for corporate projects, sponsorships, and regulatory
compliance.
One-off costs in relation to the acquisition of WMC were incurred in the
prior period. There were no similar costs in this period.
Minerals exploration expenditure has increased from US$43 million to
US$57 million in the current period, mainly due to increased exploration
activity in Angola and Mongolia.
The following notes explain the terms used throughout this profit
release:
(1) Underlying EBIT margin is calculated net of third party product
activities.
(2) Based on share price of US$18.65.
(3) 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$1,360 million
(comprising Group depreciation, impairments and amortisation of US$1,196
million and jointly controlled entities` depreciation and amortisation of
US$164 million) for the six months ended 31 December 2006 and US$1,300
million (comprising Group depreciation, impairments and amortisation of
US$1,137 million and jointly controlled entities` depreciation and
amortisation of US$163 million) for the six months ended 31 December
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.
(4) 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.
(5) Net operating cash flow includes dividends from jointly controlled
entities and is after net interest and taxation.
(6) 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, fair value change on
hedged loans, net of hedging derivatives, and exchange differences
arising from net debt.
(7) Iron Ore, Metallurgical Coal and Manganese are now separate CSGs
(previously combined as Carbon Steel Materials).
(8) Based upon closing price as at 2 February 2007 of A$26.59 and
GBP9.76.
Forward-looking statements Certain statements contained in this release,
including statements in the section entitled `Investing in the Future`
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 2006, which we filed with the US Securities and
Exchange Commission (SEC) on 25 September 2006 and 18 December 2006,
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
Samantha Evans, Media Relations
Tel: +61 3 9609 2898 Mobile: +61 400 693 915
email: Samantha.Evans@bhpbilliton.com
Jane Belcher, Investor Relations
Tel: +61 3 9609 3952 Mobile: +61 417 031 653
email: Jane.H.Belcher@bhpbilliton.com
United Kingdom
Mark Lidiard, Investor & Media Relations
Tel: +44 20 7802 4156 Mobile: +44 7769 934 942
email: Mark.Lidiard@bhpbilliton.com
Illtud Harri, Media Relations
Tel: +44 20 7802 4195 Mobile: +44 7920 237 246
email: Illtud.Harri@bhpbilliton.com
United States
Tracey Whitehead, Investor & Media Relations
Tel: US +1 713 599 6100 or UK +44 20 7802 4031
Mobile: +44 7917 648 093
email: Tracey.Whitehead@bhpbilliton.com
South Africa
Ivan Arriagada, Investor Relations
Tel: SA +27 11 376 2121 or UK +44 20 7802 4183
Mobile: +44 7769 936 227
email: Ivan.D.Arriagada@bhpbilliton.com
INTERIM FINANCIAL REPORT
For the half year ended
31 December 2006
CONTENTS
Interim Financial Statements Page
Consolidated Income Statement 17
Consolidated Statement of Recognised Income and Expense 18
Consolidated Balance Sheet 19
Consolidated Cash Flow Statement 20
Notes to the Interim Financial Statements 21
Notes to Interim Financial Statements
1 Accounting policies 21
2 Business segments 21
3 Exceptional items 25
4 Investments accounted for using the equity method 25
5 Net finance costs 26
6 Taxation 26
7 Earnings per share 26
8 Dividends 27
9 Assets sold or classified as held for sale 27
10 Total equity 28
11 Contingent liabilities 28
12 Subsequent events 28
Directors` Report 29
Directors` Declaration 30
Lead Auditor`s Independence Declaration 30
Review Report 31
Consolidated Income Statement
for the half year ended 31 December 2006
Half year Half year Year ended
ended ended 30 June
31 31 December 2006
December 2005
2006
Notes US$M US$M US$M
Revenue together with share of
jointly controlled entities`
revenue
Group production 19,046 15,638 34,139
Third party products 3,067 2,442 4,960
22,113 18,080 39,099
Less: share of jointly (3,610) (2,880) (6,946)
controlled entities` external
revenue included above
Revenue 18,503 15,200 32,153
Other income 293 297 1,227
Expenses excluding finance (12,292) (10,679) (22,403)
costs
Share of profits from jointly 4 2,015 1,441 3,694
controlled entities
Profit from operations 8,519 6,259 14,671
Comprising:
Group production 8,407 6,148 14,560
Third party products 112 111 111
8,519 6,259 14,671
Financial income 5 116 93 226
Financial expenses 5 (338) (308) (731)
Net finance costs 5 (222) (215) (505)
Profit before taxation 8,297 6,044 14,166
Income tax expense (1,901) (1,389) (3,207)
Royalty related taxation (net (196) (227) (425)
of income tax benefit)
Total taxation expense 6 (2,097) (1,616) (3,632)
Profit after taxation 6,200 4,428 10,534
Profit attributable to minority 32 64 84
interests
Profit attributable to members 6,168 4,364 10,450
of BHP Billiton Group
Earnings per ordinary share 7 103.9 72.1 173.2
(basic) (US cents)
Earnings per ordinary share 7 103.8 71.9 172.4
(diluted) (US cents)
Dividends per ordinary share - 8 18.5 14.5 32.0
paid during the period (US
cents)
Dividends per ordinary share - 8 20.0 17.5 36.0
declared in respect of the
period (US cents)
The accompanying notes form part of these financial statements.
Consolidated Statement of Half year Half year Year ended
Recognised Income and Expense ended ended 30 June
31 31 2006
December December
2006 2005
Notes US$M US$M US$M
Profit after taxation 6,200 4,428 10,534
Amounts recognised directly
in equity
Actuarial gains/(losses) on (48) 6 111
pension and medical schemes
Available for sale
investments:
Valuation gains/(losses) 113 4 (1)
taken to equity
Cash flow hedges:
Gains/(losses) taken to 87 (35) (27)
equity
(Gains)/losses transferred to
the initial carrying amount (17) (34) (25)
of hedged items
Exchange fluctuations on 22 (12) (1)
translation of foreign
operations
Tax on items recognised (22) 43 4
directly in, or transferred
from, equity
Total amounts recognised 135 (28) 61
directly in equity
Total recognised income and 6,335 4,400 10,595
expense for the period
Attributable to minority 32 64 84
interests
Attributable to members of 6,303 4,336 10,511
BHP Billiton Group
Effect of change in
accounting policy:
Impact of adoption of IAS 39/
AASB 139 (net of tax) to:
- retained earnings 10 - 55 55
- hedging reserve 10 - 30 30
- financial assets reserve 10 - 116 116
Total effect of change in - 201 201
accounting policy
Attributable to minority - - -
interests
Attributable to members of - 201 201
BHP Billiton Group
The accompanying notes form part of these financial statements
Consolidated Balance Sheet
as at 31 December 2006
31 31 30 June
December December 2006
2006 2005
Notes US$M US$M US$M
ASSETS
Current assets
Cash and cash equivalents 1,423 809 776
Trade and other receivables 3,987 3,722 3,831
Other financial assets 846 392 808
Inventories 3,203 2,538 2,732
Assets held for sale - 46 469
Other 278 139 160
Total current assets 9,737 7,646 8,776
Non-current assets
Trade and other receivables 809 762 813
Other financial assets 1,013 866 950
Inventories 123 103 93
Investments in jointly 3,772 3,735 4,299
controlled entities
Property, plant and equipment 33,282 29,261 30,985
Intangible assets 686 652 683
Deferred tax assets 2,230 1,180 1,829
Other 88 73 88
Total non-current assets 42,003 36,632 39,740
Total assets 51,740 44,278 48,516
LIABILITIES
Current liabilities
Trade and other payables 3,937 3,583 4,053
Interest bearing liabilities 1,386 1,106 1,368
Liabilities held for sale - - 192
Other financial liabilities 389 348 544
Current tax payable 1,734 863 1,358
Provisions 1,021 934 1,067
Deferred income 275 266 279
Total current liabilities 8,742 7,100 8,861
Non-current liabilities
Trade and other payables 177 162 169
Interest bearing liabilities 7,243 8,427 7,648
Other financial liabilities 189 100 289
Deferred tax liabilities 1,379 1,499 1,592
Provisions 5,172 4,801 4,853
Deferred income 611 757 649
Total non-current liabilities 14,771 15,746 15,200
Total liabilities 23,513 22,846 24,061
Net Assets 28,227 21,432 24,455
EQUITY
Share capital - BHP Billiton 1,498 1,628 1,490
Limited
Share capital - BHP Billiton 1,234 1,234 1,234
Plc
Share premium account 518 518 518
Treasury shares held (1,768) (5) (418)
Reserves 492 270 306
Retained earnings 26,006 17,495 21,088
Total equity attributable to 10 27,980 21,140 24,218
members of BHP Billiton Group
Minority interests 10 247 292 237
Total equity 28,227 21,432 24,455
The accompanying notes form part of these financial statements.
Consolidated Cash Flow Statement
Half year Half year
ended ended Year ended
31 31 30 June
December December 2006
2006 2005
US$M US$M US$M
Operating activities
Receipts from customers 19,115 15,582 32,938
Payments to suppliers and (12,108) (10,246) (20,944)
employees
Cash generated from 7,007 5,336 11,994
operations
Dividends received 2,571 921 2,671
Interest received 54 60 121
Interest paid (223) (209) (499)
Income tax paid (2,043) (1,511) (3,152)
Royalty related taxation paid (348) (289) (659)
Net operating cash flows 7,018 4,308 10,476
Investing activities
Purchases of property, plant (3,092) (2,317) (5,239)
and equipment
Exploration expenditure (304) (348) (766)
(including amounts
capitalised)
Purchases of investments and (52) (5) (65)
funding of jointly controlled
entities
Purchases of, or increased (12) (500) (531)
investment in, subsidiaries,
operations and jointly
controlled entities, net of
their cash
Cash outflows from investing (3,460) (3,170) (6,601)
activities
Proceeds from sale of 82 37 92
property, plant and equipment
Proceeds from sale or 23 108 153
redemption of investments
Proceeds from sale or partial 203 111 844
sale of subsidiaries,
operations and jointly
controlled entities net of
their cash
Net investing cash flows (3,152) (2,914) (5,512)
Financing activities
Proceeds from ordinary share 12 24 34
issues
Proceeds from interest 1,957 3,946 5,912
bearing liabilities
Repayment of interest bearing (2,580) (4,646) (7,013)
liabilities
Purchase of shares by (131) (145) (187)
Employee Share Ownership Plan
Trusts
Share buy back - BHP Billiton - - (1,619)
Limited
Share buy back - BHP Billiton (1,355) - (409)
Plc
Dividends paid (1,100) (877) (1,936)
Dividends paid to minority (22) (112) (190)
interests
Repayment of finance leases (2) (1) (4)
Net financing cash flows (3,221) (1,811) (5,412)
Net increase/(decrease) in 645 (417) (448)
cash and cash equivalents
Cash and cash equivalents, 760 1,207 1,207
net of overdrafts, at
beginning of period
Effect of foreign currency (2) (1) 1
exchange rate changes on cash
and cash equivalents
Cash and cash equivalents, 1,403 789 760
net of overdrafts, at end of
period
The accompanying notes form part of these financial statements.
Notes to the Interim Financial Statements
1 Accounting policies
This general purpose condensed financial report for the six months ended
31 December 2006 is an unaudited report which has been prepared in
accordance with IAS 34/AASB 134 `Interim Financial Reporting` and with
the requirements of the Listing Rules of the Financial Services Authority
in the United Kingdom and the Australian Corporations Act 2001 as
applicable to interim financial reporting.
The interim financial report has been prepared on the basis of accounting
policies consistent with those applied in the 30 June 2006 Annual
financial statements contained within the Annual Report of the BHP
Billiton Group, except for IFRIC 4 / UIG Interpretation 4 "Determining
whether an arrangement contains a lease" which is first applicable for
the Group`s annual reporting period ending 30 June 2007 and has been
applied in this interim report. IFRIC 4 / UIG 4 provides interpretive
guidance for determining whether arrangements (such as service delivery
and take-or-pay purchase contracts) contain a lease which needs to be
accounted for in accordance with IAS 17 / AASB 117 "Leases". The
application of IFRIC 4 / UIG 4 did not have a material impact on the
current or comparative periods.
The interim financial report does not include all of the information
required for a full annual financial report and is to be read in
conjunction with the most recent annual financial report. The comparative
figures for the financial year ended 30 June 2006 are not the statutory
accounts of BHP Billiton Plc for that financial year. Those accounts,
which were prepared under IFRS, have been reported on by the company`s
auditors and delivered to the registrar of companies. The report of the
auditors was unqualified and did not contain statements under Section
237(2) or (3) of the UK Companies Act 1985.
Comparative information for the six months ended 31 December 2005 has
been restated in accordance with IFRS 3 / AASB 3 "Business Combinations"
to reflect the final allocation of fair values on acquisition of WMC
Resources Ltd as outlined in note 36 to the BHP Billiton Annual Report
2006. There was no impact on profit or net assets of this restatement.
Rounding of amounts
Amounts in this financial report have, unless otherwise indicated, been
rounded to the nearest million dollars.
Exchange rates
The following exchange rates against the US dollar have been applied in
the financial report:
Average Average Average
Half year Half year Year As at As at As at
ended 31 ended 31 ended 31 31 30 June
December December 30 June December December 2006
2006 2005 2006 2006 2005
Australia 0.76 0.75 0.75 0.79 0.73 0.74
n dollar
(a)
Brazilian 2.16 2.30 2.24 2.14 2.33 2.18
real
Canadian 1.13 1.19 1.16 1.16 1.16 1.11
dollar
Chilean 534 540 532 534 514 546
peso
Colombian 2,372 2,297 2,324 2,240 2,287 2,635
peso
South 7.23 6.52 6.41 7.00 6.33 7.12
African
rand
Euro 0.78 0.83 0.82 0.76 0.84 0.78
UK pound 0.53 0.57 0.56 0.51 0.58 0.55
sterling
(a) Displayed as US$ to A$1 based on common convention.
2 Business segments
The BHP Billiton Group has grouped its major operating assets into the
following Customer Sector Groups (CSGs):
* Petroleum (exploration for and production, processing and marketing of
hydrocarbons including oil, gas and LNG)
* Aluminium (exploration for and mining of bauxite, processing and
marketing of aluminium and alumina)
* Base Metals (exploration for and mining, processing and marketing of
copper, silver, zinc, lead, uranium and copper by-products including
gold)
* Diamonds and Specialty Products (exploration for and mining of diamonds
and titanium minerals, and prior to divestment in August 2006,
fertiliser operations)
* Stainless Steel Materials (exploration for and mining, processing and
marketing of nickel)
* Iron Ore (exploration for and mining, processing and marketing of iron
ore)
* Manganese (exploration for and mining, processing and marketing of
manganese)
* Metallurgical Coal (exploration for and mining, processing and
marketing of metallurgical coal)
* Energy Coal (exploration for and mining, processing and marketing of
energy coal)
Iron Ore, Manganese and Metallurgical Coal, which were previously
reported as the Carbon Steel Materials CSG are now reported as separate
CSGs.
Group and unallocated items represent Group centre functions and certain
comparative data for divested assets and investments and exploration and
technology activities.
It is the Group`s policy that inter-segment sales are made on a
commercial basis.
2 Business segments (continued)
US$ million Petroleum Aluminium Base Diamonds Stainless
Metals and Steel
Specialty Materials
Products
Half year ended 31
December 2006
Revenue together
with share of
jointly controlled
entities` revenue
from external
customers
Sale of group 2,490 2,157 4,630 393 2,762
production
Sale of third party 169 667 1,014 - 43
product
Rendering of 4 4 - - -
services
Inter-segment 295 - - - -
revenue
2,958 2,828 5,644 393 2,805
Less: share of (3) - (2,887) (167) -
jointly controlled
entities` external
revenue included
above
Segment revenue 2,955 2,828 2,757 226 2,805
Segment result 1,608 700 757 11 1,430
Other attributable 5 - 12 2 6
income (1)
Share of profits (1) 122 1,648 50 -
from jointly
controlled entities
Profit from 1,612 822 2,417 63 1,436
operations
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
2 Business segments (continued)
US$ million Iron Manganese Group and BHP
Ore Metallurgical Energy unallocated Billiton
Coal Coal items/ Group
eliminations
Half year
ended 31
December
2006
Revenue
together
with share
of jointly
controlled
entities`
revenue
from
external
customers
Sale of 2,717 535 1,829 1,494 - 19,007
group
production
Sale of 15 40 - 827 292 3,067
third party
product
Rendering of 17 - 2 - 12 39
services
Inter- - - 2 - (297) -
segment
revenue
2,749 575 1,833 2,321 7 22,113
Less: share (318) - - (235) - (3,610)
of jointly
controlled
entities`
external
revenue
included
above
Segment 2,431 575 1,833 2,086 7 18,503
revenue
Segment 1,246 105 657 121 (131) 6,504
result
Other - - - 21 (46) -
attributable
income (1)
Share of 121 - 2 73 - 2,015
profits from
jointly
controlled
entities
Profit from 1,367 105 659 215 (177) 8,519
operations
Net finance (222)
costs
Taxation (1,901)
Royalty (196)
related
taxation
Profit after 6,200
taxation
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
2 Business segments (continued)
Base Diamonds
Metals and Stainless
Specialty Steel
US$ million Petroleum Aluminium Products Materials
Half year
ended 31
December
2005
Revenue
together
with share
of jointly
controlled
entities`
revenue from
external
customers
Sale of 2,371 1,575 3,549 679 1,346
group
production
Sale of 250 677 481 - 12
third party
product
Rendering of - - 1 - -
services
Inter- 47 - - - -
segment
revenue
2,668 2,252 4,031 679 1,358
Less: share (3) (46) (2,062) (201) -
of jointly
controlled
entities`
external
revenue
included
above
Segment 2,665 2,206 1,969 478 1,358
revenue
Segment 1,431 329 490 190 374
result
Other 5 - - - -
attributable
income (1)
Share of - 56 1,114 33 -
profits from
jointly
controlled
entities
Profit from 1,436 385 1,604 223 374
operations
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
2 Business segments (continued)
US$ million Iron Ore Manganese Metallurgical Energy Group and BHP
Coal Coal unallocated Billiton
items/ Group
eliminations
Half year
ended 31
December
2005
Revenue
together
with share
of jointly
controlled
entities`
revenue
from
external
customers
Sale of 2,300 473 1,901 1,399 5 15,598
group
production
Sale of 8 26 - 662 326 2,442
third party
product
Rendering 15 - 3 - 21 40
of services
Inter- - - 2 - (49) -
segment
revenue
2,323 499 1,906 2,061 303 18,080
Less: share (329) (16) - (222) (1) (2,880)
of jointly
controlled
entities`
external
revenue
included
above
Segment 1,994 483 1,906 1,839 302 15,200
revenue
Segment 1,042 79 947 103 (167) 4,818
result
Other - 8 - - (13) -
attributabl
e income
(1)
Share of 162 (2) - 77 1 1,441
profits
from
jointly
controlled
entities
Profit from 1,204 85 947 180 (179) 6,259
operations
Net finance (215)
costs
Taxation (1,389)
Royalty (227)
related
taxation
Profit 4,428
after
taxation
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
2 Business segments (continued)
US$ million Petroleum Aluminium Base Diamonds Stainless
Metals and Steel
Specialty Materials
Products
Year ended
30 June 2006
Revenue
together
with share
of jointly
controlled
entities`
revenue from
external
customers
Sale of 4,797 3,704 9,034 1,263 2,916
group
production
Sale of 321 1,374 1,259 - 37
third party
product
Rendering of 3 6 1 - -
services
Inter- 109 - - - 2
segment
revenue
5,230 5,084 10,294 1,263 2,955
Less: share (5) (107) (5,393) (377) -
of jointly
controlled
entities`
external
revenue
included
above
Segment 5,225 4,977 4,901 886 2,955
revenue
Segment 2,963 917 1,998 209 901
result
Other 5 37 - - -
attributable
income (1)
Share of - 193 3,015 91 -
profits from
jointly
controlled
entities`
Profit from 2,968 1,147 5,013 300 901
operations
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
2 Business segments (continued)
US$ million Iron Manganese Group and BHP
Ore Metallurgical Energy unallocated Billiton
Coal Coal items/ Group
eliminations
Year ended
30 June 2006
Revenue
together
with share
of jointly
controlled
entities`
revenue from
external
customers
Sale of 4,735 965 3,926 2,713 5 34,058
group
production
Sale of 15 72 1 1,252 629 4,960
third party
product
Rendering of 32 - 6 - 33 81
services
Inter- - - 8 - (119) -
segment
revenue
4,782 1,037 3,941 3,965 548 39,099
Less: share (593) (33) - (438) - (6,946)
of jointly
controlled
entities`
external
revenue
included
above
Segment 4,189 1,004 3,941 3,527 548 32,153
revenue
Segment 2,201 126 1,832 131 (301) 10,977
result
Other - 8 1 - (51) -
attributable
income (1)
Share of 263 (2) 1 139 (6) 3,694
profits from
jointly
controlled
entities`
Profit from 2,464 132 1,834 270 (358) 14,671
operations
Net finance (505)
costs
Taxation (3,207)
Royalty (425)
related
taxation
Profit after 10,534
taxation
(1) Other attributable income represents the re-allocation of certain
items recorded in the segment result of Group and unallocated items /
eliminations to the applicable CSG / business segment.
3 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 period are detailed below.
Half year ended 31 December 2006
There were no exceptional items for the half year ended 31 December 2006.
Half year ended 31 December 2005
There were no exceptional items for the half year ended 31 December 2005.
Year ended 30 June 2006
Gross Tax Net
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 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$116 million of debt, working capital
adjustments and deferred payments contingent upon future copper prices
and production volumes.
4 Investments accounted for using the equity method
Major Ownership interest at BHP Contribution to profit
shareholdings Billiton Group reporting after taxation
in jointly date (a)
controlled
entities
31 31 30 31 31 30
December Decembe June December December June
2006 r 2005 2006 2006 2005 2006
% % % US$M US$M US$M
Samarco 50 50 50 121 163 262
Mineracao SA
Minera 33.75 33.75 33.75 246 170 437
Antamina SA
Carbones del 33.3 33.3 33.3 73 77 97
Cerrejon LLC
Minera 57.5 57.5 57.5 1,412 944 2,595
Escondida
Limitada
Mozal SARL 47.1 47.1 47.1 123 60 185
Valesul - 45.5 45.5 - (4) 8
Aluminio SA
(b)
Other (c) 40 31 110
Total 2,015 1,441 3,694
(a) The ownership interest at the jointly controlled entity`s reporting
date and BHP Billiton`s reporting date are the same. Whilst the
annual financial reporting date may be different to BHP Billiton`s,
financial information is obtained as at 31 December in order to
report on a consistent basis with BHP Billiton`s reporting date.
(b) Subsequent to 30 June 2006, the BHP Billiton Group sold its interest
in Valesul Aluminio SA.
(c) Includes immaterial jointly controlled entities and the Richards Bay
Minerals joint venture owned 50% (31 December 2005: 50%; 30 June
2006: 50%).
5 Net finance costs
Half Half Year
year year ended
ended ended 30 June
31 31 2006
December Decembe
2006 r 2005
US$M US$M US$M
Financial expenses
Interest on bank loans and 9 71 134
overdrafts
Interest on all other loans 252 149 382
Finance lease and hire 3 3 6
purchase interest
Dividends on redeemable 1 13 17
preference shares
Discounting on provisions 123 107 266
and other liabilities
Discounting on pension and 63 40 108
medical benefit entitlements
Interest capitalised (a) (145) (57) (144)
Net fair value change on 16 (16) (30)
hedged loans and related
hedging derivatives
Exchange differences on net 16 (2) (8)
debt
338 308 731
Financial income
Interest income (62) (53) (123)
Return on pension plan (54) (40) (103)
assets
(116) (93) (226)
Net finance costs 222 215 505
(a) Interest has been capitalised at the rate of interest applicable to
the specific borrowings financing the assets under construction or, where
financed through general borrowings, at a capitalisation rate
representing the average interest rate on such borrowings. For the half
year ended 31 December 2006 the capitalisation rate was 5.5 per cent (31
December 2005: 4.6 per cent; 30 June 2006: 5.0 per cent).
6 Taxation
Half year Half Year
ended year ended
31 ended 30 June
December 31 2006
2006 December
2005
US$M US$M US$M
Taxation expense including
royalty related taxation
UK taxation expense 9 131 294
Australian taxation expense 1,432 1,180 2,547
Overseas taxation expense 656 305 791
Total taxation expense 2,097 1,616 3,632
7 Earnings per share
Half year Half Year
ended year ended
31 ended 30 June
December 31 2006
2006 December
2005
Basic earnings per share (US 103.9 72.1 173.2
cents)
Diluted earnings per share 103.8 71.9 172.4
(US cents)
Basic earnings per American 207.8 144.2 346.4
Depositary Share (ADS) (US
cents) (a)
Diluted earnings per American 207.6 143.8 344.8
Depositary Share (ADS) (US
cents) (a)
Basic earnings (US$ million) 6,168 4,364 10,450
Diluted earnings (US$ 6,182 4,370 10,456
million) (b)
The weighted average number of shares used for the purposes of
calculating diluted earnings per share reconciles to the number used to
calculate basic earnings per share as follows:
Half year Half Year
ended year ended
31 ended 30 June
December 31 2006
2006 December
2005
Weighted average number of Million Million Million
shares
Basic earnings per share 5,934 6,055 6,035
denominator
Shares and options 21 26 31
contingently issuable under
employee share ownership
plans
Diluted earnings per share 5,955 6,081 6,066
denominator
(a) For the periods indicated, each ADS represents two ordinary shares.
(b) Diluted earnings are calculated after adding back dividend
equivalent payments of US$14 million (31 December 2005: US$6 million; 30
June 2006: US$6 million) that would not be made if potential ordinary
shares were converted to fully paid.
8 Dividends
Half year Half Year
ended year ended
31 ended 30 June
December 31 2006
2006 December
2005
US$M US$M US$M
Dividends paid during the
period
BHP Billiton Limited 647 520 1,148
BHP Billiton Plc - Ordinary 453 358 790
shares
- Preference shares (a) - - -
1,100 878 1,938
Dividends declared in respect
of the period
BHP Billiton Limited 699 628 1,275
BHP Billiton Plc - Ordinary 475 432 885
shares
- Preference - - -
shares (a)
1,174 1,060 2,160
Half year Half Year
ended 31 year ended 30
December ended 31 June
2006 December 2006
2005
US cents US cents US cents
Dividends paid during the
period (per share)
Prior year final dividend 18.5 14.5 14.5
Interim dividend N/A N/A 17.5
18.5 14.5 32.0
Dividends declared in respect
of the period (per share)
Interim dividend 20.0 17.5 17.5
Final dividend N/A N/A 18.5
20.0 17.5 36.0
(a) 5.5 per cent dividend on 50,000 preference shares of Pound 1 each
(December 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.
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%.
Subsequent to half year end, on 7 February 2007, BHP Billiton declared an
interim dividend of 20.0 US cents per share (US$1,174 million), which
will be paid on 20 March 2007.
9 Assets sold or classified as held for sale
During the six months ended 31 December 2006, the sale of Southern Cross
Fertiliser Pty Ltd, the Cascade and Chinook oil and gas prospects, the
Coal Bed Methane assets and the sale of BHP Billiton`s 45.5 per cent
interest in Valesul Aluminio SA, have been finalised. These assets were
classified as held for sale at 30 June 2006.
At 31 December 2006, the Bruce and Keith oil fields (with associated
acreage), which form part of the Petroleum CSG, were no longer classified
as held for sale. These operations will be retained and additional growth
options have been evaluated.
10 Total equity
Attributable to members of Minority interests
BHP Billiton Group
Half Half Half Half
year year Year year year Year
ended ended ended ended ended ended
31 31 30 June 31 31 30
December December 2006 December December June
2006 2005 2006 2005 2006
US$M US$M US$M US$M US$M US$M
Total equity 24,218 17,575 17,575 237 341 341
opening
balance
Adjustment for
adoption of
IAS 39/AASB
139
- retained - 55 55 - - -
earnings
- hedging - 30 30 - - -
reserve
- financial - 116 116 - - -
asset reserve
Total equity 24,218 17,776 17,776 237 341 341
opening
balance after
adoption of
IAS 39/AASB
139
Changes in the 6,303 4,336 10,511 32 64 84
statement of
recognised
income and
expense
Transactions 8 17 24 - - -
with owners -
contributed
equity
Dividends (1,100) (878) (1,938) (22) (113) (188)
Accrued 37 34 61 - - -
employee
entitlement to
share awards
Purchases of (131) (145) (187) - - -
shares made by
ESOP trusts
BHP Billiton (1,355) - (409) - - -
Plc share buy-
back
BHP Billiton - - (1,620) - - -
Limited share
buy-back
Total equity 27,980 21,140 24,218 247 292 237
closing
balance
Share buy-backs
Following the announcement on 23 August 2006 of a US$3.0 billion capital
return, we commenced this on 7 September 2006 with the on-market buy-back
of BHP Billiton Plc shares. As at 31 December 2006, 73,885,000 BHP
Billiton Plc shares had been bought back (6,600,000 by BHP Billiton Plc
and 67,285,000 by BHP Billiton Limited) at a total cost of US$1,355
million. The shares were repurchased at an average price of GBP9.54,
representing a discount of 8.9 per cent to the average BHP Billiton
Limited share price between 7 September and 31 December 2006. At 31
December 2006, all BHP Billiton Plc shares bought back were held as
Treasury shares. Subsequent to 31 December 2006, on 18 January 2007,
67,285,000 BHP Billiton Plc shares purchased by BHP Billiton Limited were
cancelled. This reduces the value of treasury shares held by US$1,237
million.
On 16 May 2006, the BHP Billiton Group completed an on-market buy-back of
18,820,000 BHP Billiton Plc shares. The shares were re-purchased 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.
On 3 April 2006, the BHP Billiton Group completed an off-market buy-back
of 95,950,979 BHP Billiton Limited shares. 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$23.45 per share, representing a discount of 14 per
cent to the volume weighted average price of BHP Billiton Limited shares
over the five days up to and including the closing date of the buy-back.
11 Contingent liabilities
31 31 30
December December June
2006 2005 2006
US$M US$M US$M
Contingent liabilities at
balance date, not otherwise
provided for in the financial
report, are categorised as
arising from:
Jointly controlled entities
Other (a) 410 153 355
410 153 355
Subsidiaries and jointly
controlled assets (including
guarantees)
Performance guarantees (b) 1 1 1
Other (a) 282 209 220
283 210 221
Total contingent liabilities 693 363 576
(a) Other contingent liabilities relate predominantly to actual or
potential litigation of the Group for which amounts are reasonably
estimable but the liability is not probable and therefore the Group
has not provided for such amounts in these financial statements. The
amounts relate to a number of actions against the Group, none of
which are individually significant. Additionally, there are a number
of legal claims or potential claims against the Group, the outcome
of which cannot be foreseen at present, and for which no amounts
have been included in the table above.
(b) The BHP Billiton Group has entered into various counter-indemnities
of performance guarantees related to its own future performance in
the normal course of business.
12 Subsequent events
Other than the matters outlined below, or disclosed elsewhere in this
interim financial report, no matters or circumstances have arisen since
the end of the half year that have significantly affected, or may
significantly affect, the operations, results of operations or state of
affairs of the BHP Billiton Group in subsequent accounting periods.
On 1 February 2007, the purchase of the Genghis Khan oil and gas
development was completed. The transaction, which was announced in
November 2006, closed following completion of all remaining conditions
to sale, with the net share to BHP Billiton at US$583 million after
final purchase price adjustments. BHP Billiton holds a 44 percent
interest and is the operator of the Genghis Khan development.
Director`s Report
The Directors present their report together with the interim financial
statements for the half year ended 31 December 2006 and the auditor`s
review report thereon.
Review of Operations
A detailed review of the Group`s operations, the results of those
operations during the half year ended 31 December 2006 and likely future
developments are given on page 1 to 14.
Dividend
Full details of dividends are given on page 27.
Board of Directors
The Directors of the Company in office at any time during or since the
end of the half year are:
Mr D R Argus - Chairman since April 1999 (on the Board of Directors
since November 1996)
Mr P M Anderson - a Director since June 2006
Dr D C Brink - a Director since June 1997
Dr J G Buchanan - a Director since February 2003
Mr C A Cordeiro - a Director since February 2005
Mr D A Crawford - a Director since May 1994
Dr E G de Planque - a Director since October 2005
Mr C W Goodyear - an Executive Director since November 2001
Dr D A Jenkins - a Director since March 2000
Mr M Kloppers - an Executive Director since January 2006
Mr C J Lynch - an Executive Director since January 2006
Mr J Nasser - a Director since June 2006
Mr M Salamon - an Executive Director from February 2003 until 26 October
2006
Dr J M Schubert - a Director since June 2000
Auditor`s independence declaration
KPMG in Australia are the auditors of BHP Billiton Limited. Their
auditor`s independence declaration under Section 307C of the Australian
Corporations Act 2001 is set out on page 30 and forms part of this
Directors` Report.
Rounding of amounts
BHP Billiton Limited is a company of a kind referred to in Australian
Securities and Investments Commission Class Order No 98/100, dated 10
July 1998. Amounts in the Directors` Report and financial report have
been rounded to the nearest million dollars in accordance with that
class order.
Signed in accordance with a resolution of the Board of Directors.
D R Argus - Chairman
C W Goodyear - Chief Executive Officer
Dated this 7th day of February 2007
Director`s Declaration and Lead Auditor`s Independence Declaration
Directors` Declaration
In accordance with a resolution of the Directors of the BHP Billiton
Group, the Directors declare that:
the financial statements and notes, set out on pages 16 to 28, are in
accordance with the Listing Rules of the Financial Services Authority in
the United Kingdom and the Australian Corporations Act 2001, including:
(i) complying with applicable accounting standards; and
(ii) giving a true and fair view of the financial position of the BHP
Billiton Group as at 31 December 2006 and of its performance for the
half-year ended on that date; and
There are reasonable grounds to believe that each of the BHP Billiton
Group, BHP Billiton Limited and BHP Billiton Plc will be able to pay its
debts as and when they become due and payable.
Signed in accordance with a resolution of the Board of Directors.
D R Argus - Chairman
C W Goodyear - Chief Executive Officer
Dated this 7th day of February 2007
Lead Auditor`s Independence Declaration
To the directors of BHP Billiton Limited:
I declare that, to the best of my knowledge and belief, in relation to
the review for the financial period ended 31 December 2006 there have
been:
(i) no contraventions of the auditor independence requirements as
set out in the Australian Corporations Act 2001 in relation to the
review; and
(ii) no contraventions of any applicable code of professional
conduct in relation to the review.
This declaration is in respect of the BHP Billiton Group and the
entities it controlled during the financial period.
KPMG
Peter Nash
Partner
Dated in Melbourne this 7th day of February 2007
Independent Review Report of KPMG Audit Plc to BHP Billiton Plc and
KPMGto the Members of BHP Billiton Limited
Scope
For the purposes of these reports, the terms "we" and "our" denote KPMG
Audit Plc in relation to its responsibilities under its terms of
engagement to report to BHP Billiton Plc and KPMG in relation to
Australian professional and regulatory responsibilities and reporting
obligations to the members of BHP Billiton Limited.
We have reviewed the financial information of the Group for the half-
year ended 31 December 2006, set out on pages 17 to 28, which comprises
the interim consolidated income statement, consolidated statement of
recognised income and expense, consolidated balance sheet, consolidated
cash flow statement and related notes 1 to 12. We have read the other
information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information. KPMG has also reviewed the directors` declaration
set out on page 30.
The BHP Billiton Group ("the Group") consists of BHP Billiton Plc and
BHP Billiton Limited and the entities they controlled at the end of the
half-year or from time to time during the half-year ended 31 December
2006.
Respective Responsibilities of KPMG Audit Plc and KPMG
KPMG Audit Plc`s report is made solely to BHP Billiton Plc in accordance
with the terms of KPMG Audit Plc`s engagement to assist BHP Billiton Plc
in meeting the requirements of the Listing Rules of the Financial
Services Authority in the United Kingdom. KPMG Audit Plc`s review has
been undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for
this report, or for the conclusions we have reached.
KPMG has performed an independent review of the interim financial report
in order to state whether, on the basis of the procedures described,
anything has come to its attention that would indicate that the interim
financial report is not in accordance with the Corporations Act 2001
including: giving a true and fair view of the Group`s financial position
as at 31 December 2006 and its performance for the half-year ended on
that date; and complying with Australian Accounting Standard AASB 134
Interim Financial Reporting and the Corporations Regulations 2001.
Directors` Responsibilities
The interim report, including the financial information contained
therein, is the responsibility of and has been approved by the
Directors. The Directors are responsible for preparing the interim
report:
* in accordance with the Listing Rules of the Financial Services
Authority in the United Kingdom which require that the accounting
policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual
financial statements except where any changes, and the reasons for them,
are disclosed; and
* in accordance with Australian Accounting Standard AASB 134 Interim
Financial Reporting and the Corporations Act 2001. This responsibility
includes designing, implementing and maintaining internal control
relevant to the preparation and fair presentation of the interim
financial report that is free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies;
and making accounting estimates that are reasonable in the
circumstances.
Review work performed
KPMG Audit Plc conducted its review in accordance with guidance
contained in Bulletin 1999/4 Review of interim financial information
issued by the Auditing Practices Board for use in the United Kingdom.
KPMG conducted its review in accordance with Australian Auditing
Standard on Review Engagements ASRE 2410 Review of an Interim Financial
Report Performed by the Independent Auditor of the Entity. As auditor
of BHP Billiton Limited, ASRE 2410 requires that KPMG complies with the
ethical requirements relevant to the audit of the annual financial
report.
A review consists principally of making enquiries of group management
and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as
tests of controls and verification of assets, liabilities and
transactions. A review is substantially less in scope than an audit
conducted in accordance with auditing standards and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion on the financial information.
Review conclusion by KPMG Audit Plc
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 31 December 2006.
KPMG Audit Plc
Chartered Accountants
London
7 February 2007
Review conclusion by KPMG
Based on our review, which is not an audit, we have not become aware of
any matter that makes us believe that the interim financial report of the
Group is not in accordance with:
a) the Corporations Act 2001, including:
i. giving a true and fair view of the Group`s financial position as at
31 December 2006 and of its performance for the half-year ended on that
date; and
ii. complying with Australian Accounting Standard AASB 134 Interim
Financial Reporting and the Corporations Regulations 2001.
b) other mandatory financial reporting requirements in Australia.
KPMG
Peter Nash
Partner
Melbourne
7 February 2007
Date: 07/02/2007 09:30:01 Produced by the JSE SENS Department.
