| Fri 8 Aug 2003, 9:53 | | Anglo American Plc - Interim Results |
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Anglo American Plc - Interim Results
Release Date: 08/08/2003 09:17:43 Code(s): AGL
Anglo American plc - Interim Results
(the "Company")
Anglo American plc
ISIN code: GB0004901517
Issuer code: ANAAL
Alpha code: AGL
A sound performance for the 6 months to 30 June 2003
Headline earnings per share increased by 2% to 61 US cents despite weakness of
the US dollar.
Strength from product and geographic diversity.
Outstanding contribution from Diamonds, up 49%, strong performances from
European Paper and Packaging and Industrial Minerals, more than offset reduced
earnings from Platinum, Gold and Coal.
Geographic headline earnings significantly altered:
H1 H12002
2003
Europe 30% 21%
South Africa 30% 54%
North & South 12% 7%
America
Rest of World 28% 18%
Further cost savings and efficiency improvements of $127 million achieved.
Strong cash generation: EBITDA(1) up 9% at $2.4 billion; EBITDA interest cover
of 14 times; annualised EBITDA return on total capital 19%.
$6 billion expansion programme in progress.
Interim dividend maintained at 15 US cents per share.
HIGHLIGHTS FOR THE SIX MONTHS TO 30 6 6 Change
JUNE 2003 months months
ended ended
30.06.0 30.06.0
3 2
US$ million except per share amounts
Turnover 12,076 9,567 26%
Total operating profit for the 1,534 1,581 (3)%
period
Total operating profit before 1,546 1,565 (1)%
operating exceptional items
Profit for the period 760 767 (1)%
Profit for the period before 762 762 -
exceptional items
Headline earnings for the period (2) 856 840 2%
Net operating assets (3) 24,012 17,073 41%
Net cash inflow from operating 1,286 1,381 (7)%
activities
Capital expenditure 1,172 850 38%
Earnings per share (US$):
Profit for the period 0.54 0.54 -
Profit for the period before 0.54 0.54 -
exceptional items
Headline earnings for the period 0.61 0.60 2%
Dividend for the period (US cents 15 15 -
per share)
(1) EBITDA is operating profit before exceptional items plus
depreciation and amortisation of subsidiaries and share of
EBITDA of joint ventures and associates.
(2) See note 6 for basis of calculation of headline earnings.
(3) See note 2 for definition of net operating assets.
Tony Trahar, Chief Executive, said:
"The increase in headline earnings, against a backdrop of a weak US dollar, and
a significantly stronger South African rand, was an impressive performance
during a challenging first six months of the year. Particularly pleasing were
the strong performances from Diamonds, Paper and Packaging and Industrial
Minerals which more than offset the lower contributions from Platinum, Gold and
Coal. The emphasis on reducing costs and improving efficiencies across the Group
is continuing to yield significant results and contributed materially to the
improved performance. We continue to deliver value from the acquisitions and new
projects undertaken in recent years and are ahead of projections in realising
synergies from the integration of the Disputada copper operations in Chile,
acquired last year.
Growth opportunities, both organic and through acquisition, will continue to be
pursued actively. Anglo American has one of the largest, high quality project
pipelines in the resources sector, with $6 billion of approved projects
underway. A number of major projects are coming to fruition this year.
While geopolitical tensions have reduced somewhat following the cessation of the
Iraq war and equity markets have risen strongly since March this year, the low
growth forecasts for the US, Japan and much of Euroland remain of concern.
Against this background and the prospect of a continued strong rand/dollar
exchange rate, the outlook for our key businesses remains challenging."
First half results - overview
Headline earnings for the first half of 2003 of $856 million (61 US cents per
share) were 2% higher than the corresponding period in 2002, reflecting again
the benefits of the Group"s diversified asset base and broad product mix. This
robust performance came on the back of an outstanding performance by De Beers,
strong contributions from Paper and Packaging and Industrial Minerals and an
improved contribution from Base Metals. These results more than compensated for
the significant impact of the stronger South African rand, which appreciated by
some 27% against the US dollar compared with the first six months of last year.
Lower earnings were recorded by Anglo Platinum, AngloGold and the Coal business,
due in the main to the impact of the firming of the South African rand against
the US dollar. Platinum"s earnings were also impacted by a temporary increase in
pipeline stock levels from new projects, while lower export coal prices also
affected the contribution from Coal.
The Group"s geographic sources of headline earnings altered significantly,
mainly as a result of the strong performances of the European based Industrial
Minerals and Paper and Packaging operations, as well as the weakness of the US
dollar. Europe contributed some 30% of such earnings (21% in the first half of
2002), South Africa 30% (54%), North and South America 12% (7%) and the Rest of
the World 28% (18%).
First half developments
A number of significant projects were completed in the first six months of the
year. In May, the first metal was produced at the wholly owned Skorpion zinc
mine in Namibia, expected to be one of the lowest cost zinc producers in the
world. The $454 million project, announced in 2001, has been completed within
budget and the mine is expected to produce 150,000 tonnes of zinc per annum when
it reaches full production at the end of 2004.
The new $147 million Copebras phosphate fertiliser plant in the state of Goias,
Brazil, was officially opened in April by the President of Brazil. Fertiliser
production will increase by 455,000 tonnes a year, significantly enhancing
Copebras" position in Brazil"s agribusiness markets.
The $26 million upgrade of Mondi"s Merebank PM2 uncoated woodfree paper machine
in KwaZulu Natal, South Africa, was completed successfully in the first half of
the year and will increase annual production by 40,000 tonnes.
Restructuring in Base Metals continued in line with its strategy of focusing on
long life, low cost operations and projects and disposing of smaller non-core
assets. Anglo American disposed of its investments in Anaconda Nickel in
Australia in January, and in Bindura Nickel in Zimbabwe in July. Also in July,
agreement was reached to purchase Ivernia West"s 50% equity interest in Lisheen
which included a cash consideration of $1.8 million. On completion, and
following the refinancing of its debt structure, Lisheen will be a debt-free,
wholly owned subsidiary of Anglo American. The integration of the Disputada
copper mine in Chile, acquired in November 2002, is proceeding well, with
annualised cost savings amounting to some $15 million and the first half
operating profit contribution of $46 million, in line with budget.
During the period, Anglo American increased its stake in Anglo Platinum to
72.25%, as part of its ongoing programme of buying shares in the market from
time to time.
Anglo American"s strategic objective of securing a meaningful interest in South
Africa"s iron ore sector is still subject to approval by the country"s
Competition Tribunal. Following the disposal of the stake in Avmin earlier this
year, Anglo American is focusing on Kumba, the largest iron ore producer in
South Africa (and the fifth largest in the world) where it has an equity
interest of 20.1%. The acquisition of further shares in Kumba is subject to
Competition Tribunal approval.
In August, AngloGold and Ashanti Goldfields Company Limited announced a proposed
merger of the two companies. Anglo American has confirmed its full support for
the proposed transaction, which, if approved, would dilute Anglo American"s
shareholding in the merged entity from 51.4% to 44.5%, but in a larger, more
diversified gold company with an enhanced reserve base. The Securities
Regulation Panel of South Africa has granted to Anglo American an exemption from
making a mandatory offer to AngloGold minority shareholders should Anglo
American acquire AngloGold shares to increase its holding to above 50% in less
than 12 months.
Other developments during the first half included the launch of Anglo American"s
inaugural euro-denominated benchmark bond offering, through Anglo American
Capital plc. The five-year bond raised Euro1.0 billion, with a coupon of 3.625%,
and was swapped into floating rate US dollars at a current all-in cost of
approximately 1.75% per annum. The funds have been used to repay existing bank
debt.
Going for growth
Anglo American"s $6 billion expansion programme is one of the largest in the
resources sector.
Anglo Platinum"s $2 billion expansion programme to increase production by 75% to
3.5 million ounces of platinum by 2006 is proceeding satisfactorily, although a
build-up of metal in process in the new plants resulted in reduced production of
refined metal during the period under review. Most of this is expected to be
released in the second half of the year. The viability and scheduling of Anglo
Platinum"s projects will continue to be evaluated in the context of changing
market conditions and currency parameters.
AngloGold announced a $117 million expansion of its TauTona mine in South
Africa, which will deliver an additional 1.8 million ounces over the next ten
years. The mine currently produces around 640,000 ounces a year.
In March, Anglo American announced that its Paper and Packaging business
(renamed from Forest Products, to more accurately reflect the nature of its
business) is to proceed with a $221 million expansion and modernisation of its
Richards Bay mill in KwaZulu Natal in South Africa, increasing capacity for
bleached eucalyptus pulp production by some 40%. The project is expected to be
completed by April 2005. At the Ruzomberok pulp and paper mill in Slovakia, a
$233 million expansion project, covering the rebuild of PM18 and modernisation
of the pulp mill, is on track for completion. The project will increase annual
output by 100,000 tonnes of paper in 2004 and 103,000 tonnes of pulp in 2005.
A number of projects are due to come on line later this year. The $173 million
cement plant at Buxton in Derbyshire is due to be completed in 2003, with the
first firing of the kiln anticipated by year-end. The new cement plant will
increase production by 425,000 tonnes per year. The Kleinkopje and Greenside
coal expansion projects in South Africa are also due to commence production
later this year and will increase coal production by some 2.3 million tonnes a
year. In Base Metals, the Hudson Bay 777 mine and shaft will commence
production in the second half, five months ahead of schedule and within budget.
In July, Anglo Coal and Sasol announced the development of the Kriel South coal
reserves in South Africa, which are expected to yield an estimated 200 million
tonnes of thermal coal over 20 years. Anglo Coal will invest $65 million in the
project which is due to commence production in 2005.
Black Economic Empowerment
The Group continues to make good progress in South Africa in terms of Black
Economic Empowerment. In May, the disposal of its 34.5% holding in Avmin to a
consortium comprising African Rainbow Minerals Gold Limited and Harmony Gold
Mining Company Limited (Harmony) was announced, for an aggregate cash
consideration of $231 million. In July, Anglo American disposed of its 11.5%
stake in Avgold Limited to Harmony for $80 million.
The South African Money Bill
The relatively high royalty levels proposed for mineral commodities in South
Africa in the draft Money Bill have caused concern within the mining industry,
in particular regarding the proposed rates for diamonds, platinum and gold.
Anglo American believes that in some sectors the proposals may both damage the
international competitiveness of existing operations and reduce the relative
attraction of South Africa as an investment destination. The Group is engaging
with the South African authorities as part of industry efforts to achieve a
reasonable outcome.
HIV/AIDS
Good progress has been made in rolling-out anti-retroviral therapy (ART) for
those employees infected with HIV/AIDS in South Africa. Access to drugs at
preferential rates has been secured, treatment protocols have been established
with the advice of South African clinicians and the London School of Hygiene and
Tropical Medicine and training of managers and medical staff has been
undertaken. Early indications of the impact from the treatment have been
encouraging. Approximately 500 employees are already receiving ART. Anglo
American is actively seeking to extend treatment to dependants and local
communities through partnerships with government, trade unions, NGOs and
international funding organisations.
Dividend
An unchanged interim dividend of 15 US cents has been declared.
Outlook
While geopolitical tensions have reduced somewhat following the cessation of the
Iraq war and equity markets have risen strongly since March this year, the low
growth forecasts for the US, Japan and much of Euroland remain of concern.
Against this background, and with the prospect of a continued strong rand/dollar
exchange rate, the outlook for Anglo American"s businesses remains challenging.
For further information:
Anglo American - London
Investor Relations
Nick von Schirnding
Tel: +44 207 698 8540
Media Relations
Kate Aindow
Tel: +44 207 698 8619
Anglo American - Johannesburg
Investor Relations
Anne Dunn
Tel: +27 11 638 4730
Media Relations
Marion Dixon
Tel: +27 11 638 3001
Notes to Editors:
Anglo American plc with its subsidiaries, joint ventures and associates is a
global leader in the mining and natural resource sectors. It has significant and
focused interests in gold, platinum, diamonds, coal, base metals, ferrous metals
and industries, industrial minerals and paper and packaging as well as financial
and technical strength. The Group is geographically diverse, with operations in
Africa, Europe, South and North America and Australia. (www.angloamerican.co.uk)
Note: Throughout this press release `$" means United States dollars.
OPERATIONS REVIEW
Highlights
Despite the weakness of the US dollar, headline earnings per share for the six
months to 30 June 2003 were 61 US cents per share, an increase of 2% over the
corresponding prior period. This reflects the strong performance of many of the
Group"s businesses. Diamonds, Paper and Packaging, and Industrial Minerals
performed well. The Group"s product and geographic diversity, with contributions
to headline earnings from Europe 30%, South Africa 30%, North and South America
12% and Rest of World 28%, demonstrated its benefits during a period of
difficult market conditions combined with the weakening of the US dollar. The
average exchange rate for the rand/US dollar of 8.03 reflects a 27%
strengthening of the South African rand compared to the prior period.
Profit for the financial period was $760 million compared with $767 million in
the prior period. Excluding exceptional items, earnings per share were 54 US
cents for the six months to June 2003, in line with the first half of 2002.
Platinum
$ million 6 6
months months
ended ended
30.06.0 30.06.0
3 2
Total operating profit 204 389
Headline earnings 107 158
Net operating assets 4,803 2,623
Capital expenditure 394 229
Share of Group headline earnings (%) 13% 19%
Share of Group net operating assets (%) 20% 15%
Anglo Platinum"s operating profit fell sharply to $204 million, $185 million
lower than in the first half of 2002. This resulted primarily from the
strengthening South African rand, which significantly increased operating costs
in dollar terms, combined with a rise in costs from higher production volumes at
ramp-up mining and smelting operations. Headline earnings reduced from $158
million to $107 million.
The average dollar basket price of metals sold was slightly above that of the
same period in 2002, with the benefit of a higher platinum price largely offset
by lower palladium and rhodium prices. The average realised price for platinum
of $649 per ounce was $136 higher than the same period in 2002. However,
realised palladium and rhodium prices were significantly down at $202 per ounce
for palladium (2002: $371) and $556 per ounce for rhodium (2002: $946).
The contained platinum output from mining operations was 9.6% higher, reflecting
rising output from the Rustenburg UG2, Modikwa and Bafokeng-Rasimone mining
operations. However, the simultaneous commissioning of the ACP convertor, the
slag cleaning furnace and Polokwane smelter caused a temporary increase in
pipeline stock levels that resulted in reduced production of refined metal.
Refined platinum production (including attributable Northam Platinum output)
amounted to 933,300 ounces. Platinum output from mining operations is expected
to continue to increase in the second half of the year and the temporary lock-up
of metal in the newly commissioned metallurgical facilities will be reduced by
year-end, resulting in significantly higher refined production for the latter
six months.
In June, the company announced a venture with Aquarius Platinum (SA) whereby
certain mining assets will be pooled and operated together, with both parties
sharing equally in the proceeds. This project is expected to require capital
expenditure of approximately $100 million in 2003 terms, and is likely to
produce 280,000 ounces of platinum per annum at full production.
Anglo Platinum believes that the expansion programme target to produce at the
rate of 3.5 million ounces of refined platinum per year by the end of 2006
remains appropriate in view of market demand fundamentals. The viability of
projects will continue to be evaluated in the context of changing market
parameters, such as sustained strength of the rand, and this may affect project
scheduling and the time taken to bring new operations on stream.
Gold
$ million 6 months 6
ended months
30.06.03 ended
30.06.0
2
Total operating profit 180 197
Headline earnings 82 100
Net operating assets 2,675 2,018
Capital expenditure 117 107
Share of Group headline earnings (%) 10% 12%
Share of Group net operating assets (%) 11% 12%
AngloGold"s operating profit for the first half of 2003 was 9% lower at $180
million. Headline earnings were down by 18% to $82 million mainly because of the
firmer South African currency.
AngloGold"s production at 2.8 million ounces was marginally up on the
corresponding period last year, though at a lower grade, primarily at Geita and
Great Noligwa. Total cash costs increased from $156 to $217 per ounce mainly
owing to the weakening of the US dollar against the local currencies in which
AngloGold operates, which had a significant negative impact on costs, margins
and earnings. However, these effects were more than compensated by an 18%
increase in the realised dollar gold price.
The company continued to reduce its net hedge position as the dollar gold price
maintained its strength. The hedge book was drawn down against the first half of
2002 by 17% (1.8 million ounces) to 8.7 million ounces. This reflects
AngloGold"s stated policy in respect of hedging: "this is a risk-management tool
which the company has successfully used to underpin its revenue stream and which
will be employed and, where necessary, moderated, as the market and its
operating circumstances require. Under present circumstances, AngloGold will
continue to deliver into maturing sales contracts, further reducing the
company"s forward sales position." The AngloGold board has decided to change the
targeted level of hedging commitments from 50% to 30% of five years" production.
In the United States, AngloGold concluded the sale in June of its 70% interest
in the Jerritt Canyon Joint Venture to Queenstake Resources USA Inc. Queenstake
accepted full closure and reclamation liabilities and posted surety bonds
totalling $33 million with the regulatory agencies. Permits for the operation of
the mine were transferred to Queenstake with effect from 30 June 2003.
In August, AngloGold and Ashanti Goldfields Company Limited, following an
announcement in May that the two parties were in discussions, announced the
detailed terms and conditions of a proposed merger of the two companies. It is
proposed that the merger will be implemented at a ratio of 26 AngloGold shares
for every 100 Ashanti ordinary shares or global depository securities. In
particular, the merger is conditional upon the support by, as well as certain
regulatory and other consents of, the Government of Ghana, a substantial
shareholder and regulator of Ashanti. To this end, the Government of Ghana has
appointed a consortium of advisors to advise it in considering the terms of the
proposed merger. AngloGold welcomes this appointment as an important step
forward and hopes to have clarity on the views of the Government by mid
September.
Diamonds
$ million 6 months 6
ended months
30.06.03 ended
30.06.0
2
Total operating profit 378 242
Headline earnings 248 166
Share of Group headline earnings (%) 29% 20%
Attributable operating profit from De Beers of $378 million was 56% higher than
the prior corresponding period. Headline earnings of $248 million were 49%
higher.
The diamond industry started 2003 in a cautiously optimistic mood. Retail sales
in the first two months were encouraging but then lost momentum as the global
economy slowed sharply. War in Iraq and the impact of the SARS virus on Asian
economies undermined consumer confidence. More recently, retail sales have shown
signs of recovery in line with growing consumer confidence and global retail
sales of diamond jewellery for the first six months are anticipated to at least
match those of the first half of last year.
Throughout the first six months, demand for rough diamonds from the cutting
centres was strong, largely owing to a willingness to hold higher levels of
inventory as interest rates continued to decline. Sales by The Diamond Trading
Company, the marketing arm of De Beers, totalled $2,920 million, 2.75% higher
than the equivalent period in 2002. There was a marked reduction in diamond
stocks of more than $600 million during the period, while operating cash flow
generated $1.1 billion.
In view of the exceptionally strong operating cash flow generated in the two-
year period to June 2003, De Beers has decided to refinance its existing bank
facilities by replacing the existing term loan and revolving credit facilities,
arranged on leveraged buy-out terms, with a five-year $2.5 billion Syndicated
Multi-Currency Revolving Credit facility on standard commercial terms.
Syndication was launched on 26 June and has been successfully completed.
De Beers and the Russian diamond producer Alrosa have continued to engage in
constructive dialogue with the European Commission to address the Commission"s
concerns relating to the five-year trade agreement jointly notified to the
Commission for clearance in March 2002.
Provided the strong demand for rough diamonds continues through the second half,
De Beers" results for the year as a whole should be ahead of the previous year.
Coal
$ million 6 6
months months
ended ended
30.06. 30.06.0
03 2
Total operating profit 172 232
South Africa 54 144
Australia 74 57
South America 29 29
United Kingdom 15 2
Headline earnings 107 142
Net operating assets 1,904 1,680
Capital expenditure 74 41
Share of Group headline earnings (%) 13% 17%
Share of Group net operating assets (%) 8% 10%
Anglo Coal"s operating profit was $172 million, 26% lower than for the first
half of 2002. Headline earnings of $107 million were 25% down, mainly owing to
lower export prices and exchange impacts arising from the continued
strengthening of the rand and the Australian dollar.
Operating profit for South African sourced coal fell by 53% to $69 million.
Headline earnings mirrored this drop, declining by 54% to $37 million, mainly as
a result of significantly lower export prices, which were 19% down on a year
ago, and the weaker US dollar. This was partially offset by strong cost control.
Sales volumes increased by 8% to 25 million tonnes. The Kriel South project has
been approved by the Competition Tribunal and production is scheduled to
commence in 2005. The Kleinkopje and Greenside expansions are in their final
stages and will be completed during 2004.
In Australia, operating profit rose by 29% to $74 million owing to strict
control of operating costs and improved production performances at Moranbah
North and Dartbrook. The average price of thermal coal fell by 2% and coking
coal remained at similar levels to last year. Total attributable sales tonnes
were slightly down on last year mainly because of weak domestic demand. On
average, the Australian dollar appreciated against the US dollar by 15% compared
with the corresponding period a year ago. This was partially offset by
favourable exchange rate hedges taken out earlier in the year. Work continues on
the development of the Grasstree, Kayuga and Theodore projects.
In Colombia, synergies achieved as a result of merging the two operations in
2002 continue to exceed expectations. Cerrejon has now embarked on the expansion
of the operation to 28 million tonnes per annum. The Carbones del Guasare
operation in Venezuela was negatively affected by political events in that
country during the first half of 2003 - initially, by the national strike at the
beginning of the year and, more recently, by the problems administering the
exchange controls imposed at that time. The operation has, however, received
assurances from the authorities that this situation is being addressed.
Base Metals
$ million 6 6
months months
ended ended
30.06. 30.06.
03 02
Total operating profit/(loss) before 98 81
exceptional items
Copper 106 66
Nickel, Niobium, Mineral Sands 47 43
Zinc (44) (20)
Other (11) (8)
Exceptional items - 46
Total operating profit after exceptional 98 127
items
Headline earnings 60 37
Net operating assets 3,933 1,939
Capital expenditure 155 146
Share of Group headline earnings (%) 7% 4%
Share of Group net operating assets (%) 16% 11%
Base Metals" operating profit was $98 million against $81 million (excluding the
$46 million profit arising from the sale of Salobo) in the first half of 2002.
Headline earnings of $60 million were 62% higher.
Having started the year positively, base metal prices, with the exception of
nickel, slipped lower, initially on fears of a protracted Iraq conflict and
subsequently owing to concerns about the impact of the SARS virus on Chinese
demand. Although prices have subsequently firmed, economic indicators continue
to be mixed and any improvement in base metal prices is expected to remain muted
until there is clear evidence of a more robust and sustained economic upturn.
The copper price averaged 74.9 US cents/lb (2002: 71.8 US cents/lb).
Attributable copper production amounted to 350,000 tonnes (2002: 232,500
tonnes), generating operating profits of $106 million (2002: $66 million), of
which Disputada, which was acquired in November 2002, contributed $46 million.
The integration of Mantos Blancos and Disputada in Chile has proceeded faster
than originally budgeted, with annualised savings of over $15 million identified
to date, and the original estimate of synergies (with a net present value of
$100 million) is likely to be exceeded.
The nickel, niobium and mineral sands division benefited from buoyant nickel
prices which averaged 379 US cents/lb compared with 298 US cents/lb a year
earlier. Nickel production totalled 12,000 tonnes (2002: 14,400 tonnes). There
were improved performances from Codemin in Brazil and from Venezuelan producer
Loma de Niquel, which achieved design throughput in May 2003, offsetting the
lack of production from the holding in Tati which was sold in 2002. Continuing
political instability in Venezuela, and the recent introduction of foreign
exchange controls, have necessitated active management but, to date, have not
materially impacted operations at Loma de Niquel. Catalao produced 1,700 tonnes
of niobium (2002: 1,700 tonnes) but demand remained subdued. Prices at Namakwa
Sands in South Africa remained reasonably firm, but lower recoveries and
throughput resulted in lower production of zircon (4,900 tonnes lower) and
rutile (2,100 tonnes less). Slag production of 73,800 tonnes, although in line
with 2002 production, was also disappointing.
Zinc production rose to 159,500 tonnes (2002: 98,800 tonnes), but continuing low
prices (35.4 US cents/lb compared with 35.7 US cents/lb in 2002) resulted in an
operating loss of $44 million (2002: $20 million loss). Operating performance at
Hudson Bay in Canada continued to improve but financial performance was
adversely impacted by higher than budgeted costs, in part driven by oil prices
and adverse currency movements. In Ireland, at the Lisheen mine (now accounted
for on a 100% basis), production was above design capacity but at slightly lower
grades. In South Africa, output at Black Mountain was slightly lower than in
2002 owing to ore availability difficulties in the mine.
Currency effects (in particular, the strengthening of the rand, Canadian dollar
and euro) had a net adverse impact on profitability of $25 million, compared
with 2002.
Base Metals continued its strategy of upgrading the quality of its asset
portfolio by disposing of its interest in Anaconda Nickel Limited and announcing
the disposal of its interest in Bindura Nickel Corporation. At Lisheen, Anglo
Base repurchased $146 million of bank debt at a discount of 50 cents in the
dollar, and in July agreed to purchase Ivernia West"s 50% equity interest which
included a cash consideration of $1.8 million. On completion, and following the
refinancing of its debt structure, Lisheen will be a debt-free, wholly owned
subsidiary of Anglo American.
The $454 million Skorpion project in Namibia was completed on budget during the
first half of 2003. The Hudson Bay 777 mine and shaft (the last component of the
$276 million 777 project) will commence production in the second half of 2003,
some five months ahead of schedule and within budget. In Chile, Collahuasi"s
$654 million Rosario project is on schedule to commence production in mid-2004
and is currently on target for completion within budget, while the $110 million
Black Mountain Deeps project in South Africa remains on schedule, although the
recent strength of the rand is putting some pressure on the capital budget.
Industrial Minerals
$ million 6 months 6 months
ended ended
30.06.03 30.06.02
Total operating profit 136 113
Tarmac 126 107
Copebras 10 6
Headline earnings 113 89
Net operating assets 3,978 3,532
Capital expenditure 136 159
Share of Group headline earnings (%) 13% 11%
Share of Group net operating assets (%) 17% 21%
Industrial Minerals" operating profit rose to $136 million, 20% higher than for
the first half of 2002, while headline earnings at $113 million were up by 27%.
The performances of both the Tarmac group and Copebras continued to improve.
Tarmac"s operating profit increased by 18%, due to an improved trading
performance and US dollar weakness against the European currencies. Copebras
benefited from buoyant local market conditions and increased international
fertiliser prices, which, together with production starting at the phosphate
fertiliser plant at Goias, increased operating profit by nearly 50%.
In the UK, asphalt volumes reflected increased government infrastructure spend.
Volumes of slag products, which are exempt from the aggregates levy, and
concrete products also grew. In increasingly competitive market conditions,
price rises and the benefits of Tarmac"s ongoing business improvement and cost
reduction programmes ensured an increase in operating profit. Work continues on
the new cement plant at Buxton and the project remains on target for completion,
below budget, later this year.
The expansionary programme of acquisitions and investments has continued in the
six months, including the purchase of Baxter Asphalt, an independent producer of
asphalt in Lancashire, and investment in three dry silo mortar plants. These
plants will be a welcome addition to Tarmac"s profitable network of facilities
aimed at providing excellent local service. Phase I of the $15 million
investment in a new decorative paving plant in Yorkshire was successfully
completed in the six months and will enhance Tarmac"s ability to supply this
strong growth market in the UK.
Operating profit in continental Europe was 32% higher. This reflected continuing
strong market conditions in Spain, particularly in Madrid, and a first-time
contribution from the Mavike business acquired in 2002. France suffered weak
market conditions, while the businesses in eastern Europe were affected by
unusually extreme cold and snow, which only cleared in April/May. Sales then
improved considerably but this was not enough to offset the adverse impact of
the first three months.
Copebras benefited from the buoyant local agricultural market and higher
international fertiliser prices. The new plant at Goias has successfully
positioned Copebras to participate further in the expected growth of the
fertiliser market in Brazil.
Paper and Packaging
$ million 6 months 6
ended months
30.06.03 ended
30.06.0
2
Total operating profit 357 291
Europe 260 191
South Africa 97 100
Headline earnings 178 153
Net operating assets 4,374 3,474
Capital expenditure 233 132
Share of Group headline earnings (%) 21% 18%
Share of Group net operating assets (%) 18% 20%
Operating profit was $357 million, 23% higher than for the first six months of
2002. Headline earnings rose by 16% from $153 million to $178 million.
Despite a downturn in economic conditions, Mondi Europe reported operating
profits of $260 million, a 36% increase. This was achieved through increased
volumes, ongoing profit improvement initiatives, product differentiation and
incremental earnings from acquisitions, including the realisation of operating
synergies from the integration of acquired businesses. With a significant
proportion of the European earnings denominated in euros, profits were also
boosted by the 19% strengthening of the euro against the dollar compared with
the prior period.
European packaging achieved improved results. Despite falling paper prices,
operating margins have been improved through increased volumes. The group"s
converting operations have performed well despite a lacklustre economic
environment. The integration of La Rochette, acquired in July 2002, into Mondi
Packaging Europe has been successfully achieved, with production optimisation
and ongoing focus on high margin products.
In the uncoated woodfree papers sector, the downturn in markets reported in the
fourth quarter of 2002 continued during the first six months of 2003. In spite
of lower input pulp prices, margins have reduced owing to an increasing consumer
trend towards lower grade papers. The group is nevertheless well positioned with
its low cost production operations located in Russia and Slovakia. The
integration of the Russian Syktyvkar mill, acquired in May 2002, is on track
with the acquisition plan. The rebuild of PM18 at Neusiedler Ruzomberok, in
Slovakia, is on schedule, with production due to come on stream in the fourth
quarter of 2003. Newsprint markets have also softened as a result of lower
advertising expenditure, leading to a further reduction in average prices.
Mondi South Africa reported stable operating earnings at $97 million. Despite a
slowing economy, demand for products in the South African market has held at
reasonable levels, but the stronger currency has increased competitive pressure
on pricing. Export volumes increased during the period, although some slowdown
now appears inevitable.
Improved mill outputs and higher efficiencies have countered some of the revenue
effects of competitive markets, particularly at the Richards Bay mill, where
saleable production was 15% higher than in the previous comparable period. The
upgrade of the PM2 uncoated woodfree paper machine at the Merebank Durban mill
was completed successfully during March. The modernisation and expansion of the
Richards Bay mill is on schedule, with all major equipment contracts placed and
the currency risk hedged to secure the capital cost in rands.
Ferrous Metals and Industries
$ million 6 months 6
ended months
30.06.03 ended
30.06.0
2
Ferrous Metals operating profit 74 66
Industries operating profit 30 52
Total operating profit/(loss) 104 118
Highveld Steel 4 14
Scaw Metals 35 21
Samancor Group 27 25
Tongaat-Hulett 23 43
Boart Longyear 9 10
Terra (3) (1)
Other 9 6
Headline earnings 41 50
Net operating assets 2,038 1,367
Capital expenditure 59 33
Share of Group headline earnings (%) 5% 6%
Share of Group net operating assets (%) 8% 8%
Ferrous Metals" operating profit was $74 million, $8 million higher than in the
first half of 2002. Headline earnings of $42 million were $1 million above the
prior year"s first half. The robust steel consumption in the South African
domestic market that characterised the second half of 2002 was more than
reversed in the first six months of 2003 owing to slower growth in manufacturing
production, following persistent high interest rates, and the appreciation in
value of the rand against the major currencies. Global steel prices declined
sharply towards the end of the second quarter.
The Scaw group reported an operating profit of $35 million (2002: $21 million),
which included an additional five months" contribution ($7 million) from the
Moly-Cop grinding media operations acquired at the end of May 2002. In addition
to the difficulties in the export market owing to the weaker US dollar, the
domestic market, particularly for rolled products, has weakened significantly
over the past year. These adverse developments, if continued into the second
half of the year, will clearly bring additional pressure upon earnings during
the next six months.
Highveld Steel"s operating profit reduced from $14 million to $4 million. In
South Africa, domestic steel orders and dispatches continued to slow down from
the levels achieved in 2002, resulting in production being diverted to the
export market. During the first few months of the period under review, the
impact of the firmer rand was offset by improved US dollar prices, although
these subsequently reversed. The stronger rand meant that the majority of export
sales were loss making. Vanadium prices remained at high levels during the first
quarter but softened during the second quarter following increased output from
Russia.
In 40% held Samancor, manganese profits were higher than last year owing to
higher alloy sales volumes and prices and lower production costs. Samancor
Chrome recorded an operating loss and continues to be affected by the decline in
value of the US dollar. The average ferrochrome price for the period was 32.2 US
cents/lb compared with 25.0 US cents/lb last year.
During the period under review the 10.5% Stimela option in South African iron
ore producer Kumba was implemented, thereby increasing Anglo American"s
shareholding in Kumba to 20.1%. Ferrous Metals is still awaiting approval by the
South African Competition Tribunal to acquire further shares. The 34.5%
shareholding in Avmin was disposed of during the period for $231 million.
The Boart Longyear group"s operating profit amounted to $9 million (2002: $10
million). Product and contracting results in the Americas and Asia Pacific were
higher than last year because of much stronger drilling activity, while those in
Sub-Saharan Africa continue to suffer from sluggish contracting and production
performances. The difficult trading conditions in Europe are having a negative
effect on Boart"s European region and the Wendt Precision Grinding business.
Tongaat-Hulett"s operating profit declined to $23 million (2002: $43 million).
The stronger rand, particularly at a time of increased export volumes, and
higher maize input costs had a negative impact on the group"s financial results.
Total sugar production for the current season is estimated to be lower than the
previous season"s, mainly because of below-normal rainfall in South Africa"s
sugar-growing area. The aluminium division was impacted by continued
international economic weakness and rand value leading to reduced margins. The
starch and glucose division experienced significant product-pricing pressure
from its customers in the food, paper and beverage sectors.
In the United States, Terra recorded an operating loss, as lower sales prices
and volumes and higher natural-gas costs took their toll.
Dividend
Anglo American will pay an interim dividend of 15 US cents per share on Monday
15 September 2003 to shareholders on the register at the close of business on
Friday 22 August 2003.
Cash flow
Cash flow from operations was $1,286 million compared with $1,381 million during
the prior period. This inflow was after a $375 million increase in working
capital (2002: $290 million). Interest remains well covered by EBITDA at 14
times.
Acquisition expenditure accounted for an outflow of $573 million during the
period. The principal acquisitions were increased stakes in Anglo Platinum and
Kumba.
Disposal proceeds of $237 million relate mainly to the sale of Avmin.
Purchases of tangible fixed assets amounted to $1,172 million, an increase of
$322 million from the same period in 2002. The major components of expansion
were in Base Metals, Anglo Platinum, Industrial Minerals and Paper and
Packaging.
Tax payments were $413 million compared with $567 million in the prior period.
Balance sheet
As at 30 June 2003, shareholders" funds were $18,371 million compared with
$16,261 million at 31 December 2002. This increase is due mainly to changes in
exchange rates contributing $1,579 million and retained profit of $548 million.
The increase in the value of the South African rand by 13%, relative to the US
dollar, since 31 December 2002 had a significant impact on the Group"s reserves.
Net debt was $6,989 million, an increase of $1,411 million from 31 December
2002. The increase principally reflects capital expenditure and acquisitions
during the period.
Net debt comprises $9,111 million of debt, offset by $2,122 million of cash and
current asset investments.
Net debt to total capital at 30 June 2003 was 25.1% compared with 23.1% at 31
December 2002.
Consolidated profit and loss account
for the six months ended 30 June 2003
6 6 Year
months months
ended ended ended
US$ million Note 30.06.0 30.06.0 31.12.02
3 2
Group and share of turnover of 2 12,076 9,567 20,497
joint ventures and associates
Less: Joint ventures" turnover (504) (499) (1,066)
Associates" turnover (2,669) (2,148) (4,286)
Group turnover - subsidiaries 8,903 6,920 15,145
Operating costs (7,979) (5,756) (12,804)
Group operating profit - 924 1,164 2,341
subsidiaries
Share of operating profit of 118 98 185
joint ventures
Share of operating profit of 492 319 725
associates
Total operating profit 2 1,534 1,581 3,251
Profit on disposal of fixed 3 18 29 98
assets
Loss on termination of operations 3 - (34) (34)
Profit on ordinary activities 1,552 1,576 3,315
before interest
Investment income 93 181 304
Interest payable (272) (234) (483)
Profit on ordinary activities 1,373 1,523 3,136
before taxation
Tax on profit on ordinary 4 (439) (508) (1,045)
activities
Profit on ordinary activities 934 1,015 2,091
after taxation
Equity minority interests (174) (248) (528)
Profit for the financial period 5 760 767 1,563
Equity dividends to shareholders (212) (211) (720)
- paid and proposed
Retained profit for the financial 548 556 843
period
Headline earnings for the 5 856 840 1,759
financial period
Basic earnings per share (US$):
Profit for the financial period 6 0.54 0.54 1.11
Headline earnings for the 6 0.61 0.60 1.25
financial period
Diluted earnings per share (US$):
Profit for the financial period 6 0.53 0.54 1.10
Headline earnings for the 6 0.60 0.59 1.23
financial period
Dividend per share (US cents): 15.0 15.0 51.0
Basic number of shares 6 1,413 1,410 1,411
outstanding(1) (million)
Diluted number of shares 6 1,427 1,430 1,426
outstanding(1) (million)
(1) Basic and diluted number of shares outstanding represent the weighted
average for the period.
All amounts included above relate to continuing operations.
Consolidated profit and loss account: headline earnings analysis
for the six months ended 30 June 2003
6 6 Year
months months
ended ended ended
US$ million 30.06. 30.06. 31.12.
03 02 02
Platinum 107 158 351
Gold 82 100 205
Diamonds 248 166 324
Coal 107 142 266
Base Metals 60 37 69
Industrial Minerals 113 89 231
Paper & Packaging 178 153 376
Ferrous Metals 42 41 88
Industries (1) 9 38
Exploration (39) (32) (77)
Corporate Activites (41) (23) (112)
Headline earnings for the financial 856 840 1,759
period
Consolidated balance sheet
as at 30 June 2003
As at As at As at
US$ million 30.06.03 30.06.0 31.12.02
2
Fixed assets
Intangible assets 2,269 2,096 2,310
Tangible assets 18,977 12,767 16,531
