9th May 2005 10:00
Anglo American PLC09 May 2005 PART 1 News Release 9th May 2005 International Financial Reporting Standards (IFRS) restatements for 2004 and update on adoption of IFRS For 2004 and previous years, Anglo American has prepared its Group financialstatements under UK Generally Accepted Accounting Principles (UK GAAP). Inaccordance with EU regulations, the Group is required to adopt InternationalFinancial Reporting Standards (IFRS) from 1 January 2005 and prepare its Groupfinancial statements on an IFRS basis. Anglo American will report under IFRS forthe first time in its interim results for the six months to 30 June 2005 and theGroup's first annual report under IFRS will be for the 2005 financial year. TheIFRS results for the six months to 30 June 2005 and the year to31 December 2005 will include comparative IFRS information for the relevantcorresponding period in 2004. This news release includes the Group's 2004 results, for both the half year andthe full year, restated under IFRS and explains how Anglo American's results areaffected by the change to IFRS. The headline impacts are: IFRS RESTATEMENT FOR THE YEAR TO Year ended IFRS Year ended31 DECEMBER 2004 31.12.04 adjustments(1) 31.12.04 UK GAAP IFRS US$ million, except per share amountsGroup turnover including share of joint ventures(2) 26,125 143 26,268Total profit from operations and associates beforeexceptional items(3) 4,193 105 4,298Profit for the year attributable to equity shareholders 2,913 588 3,501Headline earnings for the year(4) 2,689 (117) 2,572Net operating assets(5) 37,601 2,540 40,141EBITDA(6) 7,110 (79) 7,031Cash flow from operating activities 4,773 518 5,291Basic earnings per share (US$): Profit for the year attributable to equity shareholders 2.03 0.41 2.44 Headline earnings for the year 1.88 (0.09) 1.79 (1) IFRS adjustments exclude the impact of IAS 32 Financial Instruments: Disclosure and Presentation and IAS39 Financial Instruments: Recognition and Measurement. IAS 32 and IAS 39 are adopted prospectively from 1January 2005, however pro forma 2004 information adjusted for these two standards is provided in Appendix Iof this news release. (2) In the news release announcing the results for 2004 under UK GAAP, turnover of $31,795 million includedthe Group's share of joint ventures and associates. The 2004 UK GAAP amount of $26,125 million shown aboveincludes the Group's share of joint ventures' turnover of $1,195 million but excludes associates' turnoverof $5,670 million. (3) The UK GAAP result of $4,193 million shown here includes associates' share of tax, finance charges andminority interest to ensure comparability. See note 3 in section 4.1.7 for further detail. (4) See note 5 in section 4.1.7 for basis of calculation of headline earnings. (5) See note 1 in section 4.1.7 for definition of net operating assets. (6) EBITDA is operating profit before exceptional items plus depreciation and amortisation of subsidiariesand joint ventures and share of EBITDA of associates. 6 months IFRS 6 months ended ended adjustments(1) 30.06.04IFRS RESTATEMENT FOR THE SIX MONTHS ENDED 30.06.0430 JUNE 2004 IFRS UK GAAP US$ million, except per share amountsGroup turnover including share of joint ventures(2) 12,282 64 12,346Total profit from operations and associates before exceptionalitems(3) 2,017 69 2,086Profit for the period attributable to equity shareholders 1,709 517 2,226Headline earnings for the period(4) 1,304 (56) 1,248Net operating assets(5) 34,486 2,433 36,919EBITDA(6) 3,433 (33) 3,400Cash inflow from operating activities 2,075 167 2,242 Basic earnings per share (US$): Profit for the period attributable to equity shareholders 1.20 0.36 1.56 Headline earnings for the financial period 0.91 (0.04) 0.87 (1) IFRS adjustments exclude the impact of IAS 32 and IAS 39. IAS 32 and IAS 39 are adopted prospectivelyfrom 1 January 2005, however pro forma 2004 information adjusted for these two standards is provided inAppendix I of this news release. (2) In the interim news release announcing the 2004 half year results under UK GAAP, turnover of $15,235million included the Group's share of joint ventures and associates. The 2004 UK GAAP amount of $12,282million shown above includes the Group's share of joint ventures' turnover of $496 million but excludesassociates' turnover of $2,953 million. (3) The UK GAAP result of $2,017 million shown here includes associates' share of tax, finance charges andminority interest to ensure comparability. See note 3 in section 4.2.7 for further detail. (4) See note 5 in section 4.2.7 for basis of calculation of headline earnings. (5) See note 1 in section 4.2.7 for definition of net operating assets. (6) EBITDA is operating profit before exceptional items plus depreciation and amortisation of subsidiariesand joint ventures and share of EBITDA of associates. Tony Lea, Finance Director, commented: "Transparency and consistency of financial reporting were prime objectives forthe Group's transition project. IFRS has not changed how we as a Group dobusiness, and the presentation and accounting changes made will not detract fromour underlying business performance". The principal changes to the Group's reported financial information from theadoption of IFRS are: Changes in presentation of financial information: • proportional consolidation of joint venture entities • presentation of minority interests within equity • reporting of some unrealised gains through the income statement; and • net income from associates, after tax, interest and underlying minority interest, is now reported on one line in the income statement. Changes in accounting policies: • treatment of the US dollar preference shares held in De Beers • provision of deferred tax on additional items • replacement of goodwill amortisation with an annual impairment test • recognition of proposed dividends in the period they are declared • recognition of all assets and liabilities for employee benefit schemes operated under defined benefit arrangements • recording biological assets, primarily forests within our Paper and Packaging business, at fair value • recording the fair value of share options granted in employee remuneration schemes over the vesting period; and • inclusion of cumulative currency translation adjustments in the calculation of profits on disposal of foreign operations. For further information: Anglo American - London Investor Relations Media Relations Charles Gordon Kate Aindow Tel: +44 207 968 8933 Tel: +44 207 968 8619 Anglo American - Johannesburg Investor Relations Media Relations Anne Dunn Daniel Ngwepe Tel: +27 11 638 4730 Tel: +27 11 638 2267 Notes to Editors: Anglo American plc is one of the world's largest mining and natural resourcegroups. With its subsidiaries, joint ventures and associates, it is a globalleader in platinum group metals, gold and diamonds, with significant interestsin coal, base and ferrous metals, industrial minerals and paper and packaging.The group is geographically diverse, with operations in Africa, Europe, Southand North America, Australia and Asia. (www.angloamerican.co.uk) Note: Throughout this news release '$' denotes United States dollars. Webcast: A webcast of the IFRS presentation starting at 10am GMT on 9th May 2005 can beaccessed through the Anglo American website at www.angloamerican.co.uk. Pictures: High resolution images can be downloaded by the media at www.vismedia.com CONTENTS Page 1. Introduction 6 2. Impact of IFRS on Group results 8 3. Basis of preparation 15 4. Group Financial Information restated for IFRS 4.1 Consolidated financial information for year ended 31 December 2004: 4.1.1 Consolidated income statement 17 4.1.2 Consolidated balance sheet 18 4.1.3 Consolidated cash flow statement 19 4.1.4 Reconciliation of equity 20 4.1.5 Statement of changes in equity 21 4.1.6 Statement of recognised income and expense 21 4.1.7 Notes to financial information 22 4.2 Consolidated financial information for six months ended 30 June 2004: 4.2.1 Consolidated income statement 29 4.2.2 Consolidated balance sheet 30 4.2.3 Consolidated cash flow statement 31 4.2.4 Reconciliation of equity 32 4.2.5 Statement of changes in equity 33 4.2.6 Statement of recognised income and expense 33 4.2.7 Notes to financial information 33 4.3 Consolidated financial information as at 1 January 2004 4.3.1 Consolidated balance sheet (Opening Balance Sheet) 39 4.3.2 Reconciliation of equity 40 5. Accounting policies 41 6. Audit report from Deloitte & Touche LLP on the preliminary and pro forma IFRS financial information for the year ended 31 December 2004 48 7. Review report from Deloitte & Touche LLP on the preliminary and pro forma IFRS financial information for the six months ended 30 June 2004 50 8. Audit report from Deloitte & Touche LLP on the preliminary IFRS financial information as at 1 January 2004 52 Page Appendices I Pro forma IAS 32 and IAS 39 financial information 55 • Accounting policies • Consolidated income statement for year ended 31 December 2004 • Consolidated balance sheet as at 31 December 2004 • Consolidated income statement for 6 months ended 30 June 2004 • Consolidated balance sheet as at 30 June 2004 • Reconciliation from IFRS excluding IAS 32 and 39 to pro forma IFRS with detailed adjustments for year ended 31 December 2004 and six months ended 30 June 2004. II Reconciliation from UK GAAP to IFRS with detailed adjustments for year ended 31 December 2004, six months ended 30 June 2004 and as at 1 January 2004, where appropriate 63 • Consolidated income statement • Consolidated net assets • Operating profit by business • EBITDA by business • Headline earnings by business. 1. INTRODUCTION The Council of the European Union announced in June 2002 that listed companiesin Europe would be required to adopt International Financial Reporting Standards(IFRS) for accounting periods beginning on or after 1 January 2005. In line withthis requirement, the Group has adopted IFRS as its accounting basis from thebeginning of 2005. The adoption of IFRS will be first reflected in the Group'sfinancial statements for the half year to 30 June 2005 and year to 31 December2005. This news release sets out how the adoption of IFRS affects the 2004 results andfinancial position of the Group previously reported under UK GAAP. The documentincludes: • A summary of the most significant adjustments arising from the adoption of IFRS • Detail on the basis of preparation of the financial statements under IFRS • IFRS consolidated financial information (income statement, balance sheet, cash flow statement, Statement of Changes in Equity and Statement of Recognised Income and Expense) including supplementary notes but excluding the impact of IAS 32 and 39 for the year ended 31 December 2004 • IFRS financial information including supplementary notes but excluding the impact of IAS 32 and 39 for the 6 months ended 30 June 2004 • IFRS consolidated balance sheet and reconciliation of equity at 1 January 2004, the opening balance sheet, excluding the impact of IAS 32 and 39 • Reconciliations between UK GAAP and IFRS financial information showing adjustments in detail; and • An appendix pro forma IFRS 2004 consolidated income statement and balance sheet, for both half year and full year 2004, showing the impact of IAS 32 and 39 had it been adopted at 1 January 2004, rather than at 1 January 2005. The IFRS consolidated balance sheet as at 1 January 2004 and the IFRS financialinformation, pro forma information and supplementary notes for the year ended 31December 2004 have been audited by Deloitte & Touche LLP. The IFRS financialinformation, pro forma information and supplementary notes for the 6 monthsended 30 June 2004 have been reviewed by Deloitte & Touche LLP. The International Accounting Standards adopted by the Group are subject toongoing review and endorsement by the EU and possible amendment byinterpretative guidance from the International Financial ReportingInterpretations Committee (IFRIC) and the accounting profession. The IFRSinformation presented in this document has been prepared on the basis of currentinterpretations of standards and assumes that the proposed amendment to IAS 19will be adopted by the European Union prior to 31 December 2005. Items of income and expense that are material and require separate disclosure,in accordance with IAS 1.87, are classified as "exceptional items" on the faceof the income statement. Exceptional items that relate to the underlyingperformance of the business are classified as "operating exceptional items" andinclude impairment charges and reversals. Exceptional items not relating tounderlying business performance are classified as "non-operating exceptionalitems" and are presented below "Total profit from operations and associates" onthe income statement. Non-operating exceptional items include profits andlosses on disposals of investments, fixed assets and businesses, and costs of,or reversals of, provisions for fundamental reorganisations or restructuring.An analysis of exceptional items is provided in the notes to the financialinformation. The Group anticipates that it will continue to publish certain additionalperformance measures under IFRS: • "Headline earnings" and "headline earnings per share", calculated in accordance with the definition in the Institute of Investment Management and Research ("IIMR") statement of Investment Practice No 1, "The Definition of IIMR Headline earnings", which the directors consider to be a useful additional measure of the Group's performance and which allows an understanding of the underlying performance of the business. Headline earnings represents profit for the year excluding any exceptional items and excluding any related tax or minority interests. Exceptional items are defined above as items of income and expense that are material and require separate disclosure in accordance with IAS 1.87. These typically comprise impairment charges and reversals and profits and losses on disposals of investments and businesses. Headline earnings and headline earnings per share restated for IFRS are shown innotes 5 and 6 to the financial information in sections 4.1.7 and 4.2.7. • 'EBITDA', which is defined as operating profit before exceptional items plus depreciation of subsidiaries of joint ventures and share of EBITDA of associates. EBITDA restated for IFRS is shown in note 8 to the financial information insections 4.1.7 and 4.2.7. 2. IMPACT OF IFRS ON GROUP RESULTS The more significant areas of our Group financial information that have beenimpacted by the move to IFRS include: Presentation: • IAS 1 - presentation of minority interests within equity • IAS 1 - reporting of some unrealised gains (such as gains on deemed disposals) through the income statement • IAS 7 - presentation of "cash equivalents" as cash, net of overdrafts, for purposes of the cash flow statement • IAS 28 - net income after tax and interest from associates reported on one line in the income statement, previously gross disclosure of turnover and operating profit with tax and interest recorded in the relevant headings was permitted under UK GAAP • IAS 31 - proportional consolidation of joint venture entities Accounting: • IAS 10 - recognition of dividends in the period declared and not in the period to which they relate • IAS 12 - provision of deferred taxation on temporary differences arising on fair value adjustments at acquisition and subsequent changes reflected in the income statement • IAS 19 (revised) - recognition of all assets and liabilities for employee benefit schemes, particularly post retirement benefits • IAS 21 - recycling of cumulative currency translation adjustments from non US dollar operations on their disposal • IAS 21 - translation of non US dollar goodwill arising on acquisitions after 1 January 2004 to the closing exchange rate • IAS 28 and 21 - US dollar preference shares held in De Beers are no longer considered part of the net investment in the associate • IAS 36 - replacement of goodwill amortisation with an annual impairment test • IAS 41 - recording biological assets at fair value throughout the period of growth, previously held at the lower of historical cost and net realisable value • IFRS 2 - fair valuing share options granted in employee share based remuneration schemes. Although the majority of accounting standards to be applied in the Group's firstfull IFRS financial statements have been finalised, the principles may still besubject to possible amendment as a result of additional interpretative guidancefrom IFRIC and the accounting profession. The impact on the Group's earnings, net of tax and minority interest, for theyear to 31 December 2004 from the IFRS restatement exercise (pre IAS 32 and IAS39) is: Total profit Retained HeadlineUS$ million pre dividends profit earnings UK GAAP 2,913 1,906 2,689Reclassification of unrealised gains 427 427 -Proposed dividend adjustment - 180 -Deferred tax on fair value adjustments 41 41 41Defined benefit pension schemes - - -Recycling of currency translation adjustments 30 30 -Treatment of De Beers' preference shares (69) (69) (112)Reversal of goodwill amortisation 205 205 -Fair value of biological assets (21) (21) (20)Share based payments (21) (21) (21)Net impact of other IFRS adjustments (4) (4) (5)Restated IFRS results 3,501 2,674 2,572 Net impact from IFRS restatement 588 768 (117) The impact on the Group's earnings, net of tax and minority interest, for theperiod to 30 June 2004 from the IFRS restatement exercise (pre IAS 32 and IAS39) is: Total profit Retained HeadlineUS$ million pre dividends earnings profit UK GAAP 1,709 1,436 1,304Reclassification of unrealised gains 424 424 -Proposed dividend adjustment - (281) -Deferred tax on fair value adjustments 2 2 2Defined benefit pension schemes 8 8 8Treatment of De Beers' preference shares (5) (5) (49)Reversal of goodwill amortisation 104 104 -Fair value of biological assets (4) (4) (3)Share based payments (14) (14) (14)Net impact of other IFRS adjustments 2 2 -Restated IFRS results 2,226 1,672 1,248 Net impact from IFRS restatement 517 236 (56) The impact on the Group's net assets, gross of minority interest and currencytranslation effects, as at1 January 2004 (transition date), 30 June 2004 and 31 December 2004 from theIFRS restatement exercise (pre IAS 32 and IAS 39) is: Net assets Net assets Net assetsUS$ million 1 Jan 04 30 Jun 04 31 Dec 04 UK GAAP 19,772(1) 22,531 24,998Reclassification of UK GAAP minority interests within equity 3,396 4,160 4,620Proposed dividend adjustment 622 349 815Recognition of deferred tax on fair value adjustments (1,485) (1,552) (1,655)Defined benefit pension obligations (576) (585) (628)Translation of goodwill arising post 1 January 2004 - - 21Treatment of De Beers' preference shares (130) (143) (218)Net impairment of goodwill (214) (214) (214)Reversal of goodwill amortisation - 112 221Fair value of biological assets 26 24 14Share based payments 6 14 1Net impact of other IFRS adjustments 6 (1) (18)Restated IFRS results 21,423 24,695 27,957 Net impact from IFRS restatement (including minority interestreclassification) 1,651 2,164 2,959 Net impact from IFRS restatement (excluding minority interestreclassification) (1,745) (1,996) (1,661) (1) As restated for the 2004 UK GAAP reclassification of treasury shares intoequity. A summary of the more significant accounting policy changes that have arisen,based on current interpretations of the standards within each of these areas, isprovided below. Our assessment may be subject to revision as a result of newaccounting developments and interpretations that may arise prior to publicationof the Group's first full financial statements for the year ending 31 December2005. The more significant areas of presentation change are: IAS 1 - Presentation of minority interest in equity Minority interests have been reclassified from "long-term liabilities" to "equity" in accordance with IAS 1. Although this has increased reported netassets by $4.6 billion at 31 December 2004, $4.2 billion at 30 June 2004 and$3.4 billion at 1 January 2004, it has no impact on total shareholders' equity. IAS 1 - Reporting of unrealised gains through the income statement The international accounting framework provides no distinction betweenunrealised and realised gains for financial reporting. As such, all unrealisedgains, with the exception of actuarial gains or losses on post-retirementschemes and currency translation differences, will be recorded through theincome statement and not through the statement of total recognised gains andlosses, as was required under UK GAAP. Although this reclassification has increased reported profit for the year to 31December 2004 by $0.4 billion, there is no change to net assets. IAS 7 - Presentation of "cash equivalents" as cash for the purposes of the cashflow statement and balance sheet Short-term cash investments previously disclosed as "current asset investments"that mature within 90 days of deposit are now classified as "cash equivalents"in accordance with IAS 7. Consequently $0.6 billion of cash equivalents werereclassified from current asset investments as at 31 December 2004, $1.3 billionas at 30 June 2004 and $1.0 billion as at 1 January 2004. The $0.4 billion cash movement on cash equivalents for the year to 31 December2004 was previously recorded as the "management of liquid resources" in the UKGAAP cash flow statement. The IFRS cash flow reconciles the movement in cash andcash equivalents combined. Cash and cash equivalents in the IFRS cash flow statement are now shown net ofoverdrafts. Previously the movement of overdrafts was included within the netdebt reconciliation as "movements in debt due less than one year".Reclassifying the cash movement of overdrafts from financing activities hasincreased cash outflows by $143 million for the year ended 31 December 2004 and$47 million for the period ended 30 June 2004. IAS 28 - Reporting net income from associates Net income from associates is reported after tax and net finance costs on oneline in the consolidated income statement. Previously associates' revenue andoperating profit were disclosed separately on the face of the income statementand associates' net finance cost and tax were included within the respectiveheadings in the income statement. This reclassification has no impact on the reported total profit of the Group. IAS 31 - Proportional consolidation of joint venture entities Results of joint venture entities are incorporated on an individual line-by-linebasis in the Group financial statements, in accordance with proportionalconsolidation rules set out in IAS 31. This is a change in presentation and doesnot impact reported net assets or earnings' performance measures of the Group. The accounting policies for Joint Arrangements Not Entities ("JANEs") and jointventure operations are fundamentally the same under both UK and internationalaccounting standards. The more significant areas of accounting change are: IAS 10 - Recognition of dividends proposed in the period approved for payment Dividends proposed are recognised in the period in which they are formallyapproved for payment. This is also in accordance with the Companies Act 1985(International Accounting Standards and Other Accounting Amendments) Regulations2004, which will be effective for financial years commencing on or after 1January 2005. The change in timing of recognising proposed dividends and the related tax,thereon, has increased reported net assets of the Group as at 31 December 2004by $815 million, being the final 2004 proposed dividends to the Group'sshareholders and its minority interests, and by $349 million as at 30 June 2004,being the 2004 interim proposed dividends. IAS 12 - Recognition of deferred tax on temporary differences arising onacquisition Deferred tax is recognised at acquisition as part of the assessment of the fairvalue of assets and liabilities acquired and is provided on balances previouslyexcluded from provision under UK GAAP such as revaluations of tangible fixedassets. The largest temporary difference requiring additional deferred taxprovision on transition arises between the carrying value of mineral reservesand the respective tax base. Upon adoption of IFRS, the Group has recognised a deferred tax liability of $1.5billion in respect of additional temporary differences arising on previousacquisitions. In accordance with IFRS 1 the Group has taken the exemption fromrestating acquisitions prior to 1 January 2004, and as such this adjustment wasmade to reserves at 1 January 2004. Deferred tax provided on temporarydifferences for acquisitions made after 1 January 2004 has either increased thevalue attributed to mineral reserves or increased goodwill, depending on thenature of the temporary difference giving rise to it. Any deferred tax raised will unwind through the consolidated income statement asthe underlying temporary difference is amortised. The net impact from therecognition of additional temporary differences on acquisitions is to increaseprofit after tax by $41 million for the year ended 31 December 2004 and $2million for the period to 30 June 2004. IAS 19 - Post retirement benefit schemes IAS 19 requires companies to recognise the full deficit (or surplus, subject torestrictions) of post-retirement benefits under defined benefit arrangements onthe balance sheet. The Group has early adopted the proposed amendment to IAS 19which assumes it will be endorsed by the European Union prior to 31 December2005, and has recognised all actuarial gains or losses directly through equity. This accounting change has reduced consolidated net assets by approximately $0.6billion (net of deferred tax) as at 31 December 2004, 30 June 2004 and 1 January2004 as the full actuarial gains and losses of defined benefit arrangements arenow reflected in reserves. There is no material impact on net profit for theyear ended 31 December 2004 and an $8 million increase in net profit for theperiod ended 30 June 2004. IAS 21 - Recycling of consolidated currency translation adjustments from non USdollar operations on their disposal IAS 21 requires cumulative currency translation adjustments ("CTA") arising ontranslation of a foreign operation to be recycled through the income statementwhen that entity is disposed of. Currently, under UK GAAP, the CTA is notincluded in the gain or loss calculated if that operation is sold. Inaccordance with IFRS 1, the Group has taken the exemption from recycling foreigncurrency gains or losses arising before 1 January 2004. The accounting policy change has increased reported profit on disposal of non USdollar operations by $30 million for the year to 31 December 2004 whichrepresented recycled CTA gains arising since 1 January 2004. There was nomaterial impact on reported results for the period to 30 June 2004. This accounting change has no impact on consolidated net assets, as it iseffectively recycling gains and losses reported previously in reserves backthrough the income statement. IAS 21 - Translation of non US dollar goodwill arising on acquisitions after 1January 2004 to the closing exchange rate In accordance with IFRS 1, the Group is required to translate non US dollargoodwill arising on acquisitions after 1 January 2004 to the closing US dollarexchange rate. This accounting adjustment has increased net assets at 31December 2004 by $21 million; there is no material impact on net assets as at 30June 2004. The resulting foreign exchange gain arising on consolidation has beentaken to the CTA reserve. IAS 28 and 21 - US dollar preference shares held in De Beers Under UK GAAP, US dollar preference shares held in De Beers with a redemptionvalue of $701 million were considered part of the Group's long-term equityownership in the entity. As such, the preference shares were held at historicalcost and included in the total carrying value of the associate in theconsolidated balance sheet. The US dollar preference shares, which are held by a Rand functional currencyentity and are redeemable by 2010, no longer qualify as quasi-equity andconsequently have been reclassified as "non current investments" and areretranslated at each period end. The resulting Rand:US dollar foreign exchangegains and losses are reported through the income statement. Under IAS 21 acurrency loss of $49 million has been recorded for the six months ended 30 June2004, and a total of $112 million for the year ended 31 December 2004.Consequently the $44 million exceptional currency loss recognised on the partialredemption of preference shares under UK GAAP reporting has been reversed. The net impact from this accounting policy difference also reduced net assets by$130 million as at 1 January 2004. After the partial redemption in June 2004 of 25% of the shares, the residualcarrying value of the remaining US dollar preference shares held as at 31December 2004 was $526 million. IAS 36 - Replacement of goodwill amortisation with an annual impairment test andelimination of centrally held goodwill IFRS does not permit the amortisation of goodwill, but requires the carryingamount to be supported by an annual impairment test. For the purposes of impairment testing, goodwill is allocated to cash-generatingunits ("CGUs"), or groups of CGUs, that are expected to benefit from thesynergies of the combination. The group of CGUs to which the goodwill isallocated represents the lowest level at which the goodwill is monitored forinternal management purposes and is not larger than a geographical or businesssegment. On transition to IFRS as at 1 January 2004, approximately $260 million of "strategic" goodwill arising on the formation of Anglo American plc in 1999 waseliminated. In accordance with FRS 11, this goodwill reflected the increase infuture shareholder value arising from the merger of the AACSA and Minorcocompanies and not the intrinsic value of Minorco assets existing at the date ofrestructure and was held centrally. IFRS, however, requires that all goodwillis allocated to cash generating units. On making this allocation, the goodwillhas been reduced as a result of disposals or impairments. In addition, approximately $50 million of negative goodwill was written back inaccordance with IFRS 3 in the opening balance sheet. Together these adjustmentsgive rise to a net reduction to the carrying value of goodwill on transition of$0.2 billion. The replacement of goodwill amortisation with an annual impairment test hasincreased reported profits for the Group by $0.2 billion for the year to 31December 2004 and $0.1 billion for the period to 30 June 2004. This accountingchange does not impact headline earnings, as headline earnings were statedbefore goodwill amortisation for UK GAAP. IAS 41 - Fair value of biological assets Afforestation and other agricultural assets, primarily forests within our Paperand Packaging business, were previously held at historical cost. These assetsare now recorded at fair value in accordance with IAS 41, with fair valuechanges reported through the income statement up until the point at which theassets are harvested. The historical cost of such assets was previouslyclassified within fixed assets. This accounting change has resulted in the reclassification of afforestation andother agricultural asset costs from fixed assets to the separate asset category"biological assets", and the resultant fair value has increased net assets by$14 million as at 31 December 2004, $24 million as at 30 June 2004 and $26million as at 1 January 2004. The effect of recognising fair value gains from growing afforestation and otheragricultural assets earlier than under UK GAAP has reduced reported net profitfor the year ended 31 December 2004 by approximately $21 million and by $4million for the period ended 30 June 2004. IFRS 2 - Share based remuneration schemes IFRS 2 Share-based payments requires options granted by the Group to employees,for example under Employee Share Option Schemes and Save As You Earn schemes, tobe fair valued at grant date using an option pricing model and charged throughthe income statement over the vesting period of the options. UK GAAP required the "intrinsic valuation" method to be applied whereby a chargewas made if the exercise price of the option at grant date was below the marketprice. This accounting change has reduced consolidated net profit by $21 million forthe year to 31 December 2004 and $14 million for the period to 30 June 2004. Group employee remuneration schemes have now replaced option schemes with shareschemes. Consequently the impact of this accounting policy change willdiminish. IAS 32 and 39 - pro forma information Pro forma 2004 IFRS numbers including the impact of IAS 32 and 39 have beenprepared, although the full adoption of both of these standards is not mandatoryuntil 1 January 2005. The basis of preparation for the pro forma information including IAS 32 and 39is set out in section 3 of this news release. The standards have not beenapplied to 2004 transactions within entities that were fully disposed of in2004, or to contracts containing embedded derivatives that no longer existed asat 1 January 2005. The impact of IAS 32 and 39 on the Group's earnings, net of minority interestand tax, for the six months to30 June 2004 and the year to 31 December 2004 is as follows: Period ended Year ended 30 June 2004 31 December 2004 Total Headline Total Headline profit earnings profit earnings US$ million IFRS pre IAS 32 and 39 2,226 1,248 3,501 2,572 Derivatives(1) (47) (47) (63) (63) Impairment of assets(2) - - (64) 2 Cash flow hedges 18 18 15 15 Convertible debt(3) 8 8 (12) (12) Fair value of equity investments (43) (2) (46) (3) Deemed disposal of Anglogold 30 - 30 - Other adjustments (2) (1) 1 3 Pro forma IFRS results post IAS 32 and 39 2,190 1,224 3,362 2,514 Pro forma impact of IAS 32 and 39 (36) (24) (139) (58) The indicative impact on the Group's restated IFRS (pre IAS 32 and 39) netassets, gross of minority interest and currency translation, as at 30 June 2004and 31 December 2004 is: Net assets Net assetsUS$ million 30 Jun 04 31 Dec 04 IFRS pre IAS 32 and 39 24,695 27,957Derivatives(1) 81 72Impairment of assets(2) (69) (140)Cash flow hedges (168) (159)Convertible debt(3) 90 60Fair value of equity investments 52 57Other adjustments (1) (3) Restated IFRS net assets post IAS 32 and 39 24,680 27,844 Pro forma impact of IAS 32 and 39 (15) (113) (1) "Derivatives" comprise the mark to market of derivatives, includingembedded derivatives, that have not been designated as hedges. (2) Recognition of an embedded derivative asset arising in a commercial purchasecontract within a Base Metals' operation, has increased the carryingvalue of total assets over their recoverable amount. As a consequence, animpairment has been recognised in the pro forma financial information.On adoption of IAS 32 and IAS 39 at 1 January 2005 any resulting writedown willbe taken through brought forward reserves at that date. (3) Convertible debt is restated in accordance with the Group's accountingpolicy, as set out in Appendix I. 3. BASIS OF PREPARATION Basis of preparation The consolidated financial information for the six months ended 30 June 2004 andthe year ended 31 December 2004 and the opening balance sheet at 1 January 2004("the financial information") have been prepared in accordance withInternational Financial Reporting Standards (IFRS) for the first time. The financial information has been prepared applying the requirements of IFRS 1First-time adoption of International Financial Reporting Standards. Whereestimates were not previously required under UK GAAP, they have been based onlyon those factors existing on the balance sheet date. This is consistent withtreating information received after the balance sheet date as non-adjustingevents under IAS 10 Events after the Balance Sheet Date. Estimates notpreviously required under UK GAAP primarily relate to financial instruments,embedded derivatives, share based payments and biological assets. The Group has made the following first-time accounting policy choices, inaccordance with IFRS 1: • Business combinations - acquisitions prior to 1 January 2004 have not been restated; • Goodwill - the requirement to retranslate goodwill balances at the exchange rate at reporting date in accordance with IAS 21 The effects of Changes in Foreign Exchange Rates have been applied prospectively to goodwill balances arising on acquisitions after 1 January 2004; • Post-retirement benefits - deficits and surpluses (subject to restrictions) of post-retirement schemes under defined benefit arrangement have been recognised in full at 1 January 2004. From 1 January 2004 the Group has applied the full provision accounting method, as permitted by the proposed amendment to IAS 19 Employee Benefits, and as such, subsequent actuarial gains and losses are recorded directly in equity; • Currency translation differences - translation differences relating to foreign currency investments in subsidiaries, associates and joint ventures in existence at the transition date are deemed to be zero at the date of transition, and as such the gain or loss on subsequent disposal of any foreign operation excludes translation differences that arose before that date; • Financial instruments - IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement will be applied prospectively from 1 January 2005 and as such the 2004 restated information presented excludes any adjustments required on adoption of these standards; • Share based payments - IFRS 2 Share-Based Payment is applied to all share based rewards made after 7 November 2002 that did not vest before 1 January 2005. In addition, the Group has chosen to proportionally consolidate joint ventureentities in accordance with IAS 31 Interests in Joint Ventures. The Group, as a first-time reporter, has adopted early the following standardsand interpretations that are not mandatory as at 31 December 2005, the reportingdate of the Group's first IFRS financial statements. The following standards and interpretations have been applied with effect from 1January 2004: • IAS 19 Employee Benefits including the proposed amendments thereto • IFRS 6 Exploration for and Evaluation of Mineral Resources. The standard does not impact the Group's existing policy for exploration and evaluation expenditure • IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities • IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments • IFRIC 3 Emission Rights • IFRIC 4 Determining Whether an Arrangement Contains a Lease • IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds Early adoption of these standards and interpretations assumes the EU willendorse them by 31 December 2005, the Group's first full annual IFRS reportingdate. The following standards will be applied with effect from 1 January 2005: • IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The 2004 restated IFRS information therefore applies the requirements of IAS 35 Discontinuing Operations. • IAS 32 and 39 - Pro forma consolidated income statements and balance sheets including the application of IAS 32 and 39 prospectively from 1 January 2004 have been presented in Appendix I to this report. The basis of preparation of the pro forma information is explained in more detail below. The financial statements have been prepared in accordance with the historicalcost convention, as modified by the revaluation of certain financial instrumentsfor pro forma information as discussed below and certain biological assets. Items of income and expense that are material and require separate disclosure,in accordance with IAS 1.87, are classified as "exceptional items" on the faceof the income statement. Exceptional items that relate to the underlyingperformance of the business are classified as "operating exceptional items" andinclude impairment charges and reversals. Exceptional items that do not relateto underlying business performance are classified as "non-operating exceptionalitems" and are presented below "Total profit from operations and associates" onthe income statement. Non-operating exceptional items include profits andlosses on disposals of investments, fixed assets and businesses, and costs of,or reversal of, provisions for reorganisations or restructuring. The adjustment for items not relating to underlying business performance isbroadly equivalent to the current UK GAAP classification of exceptionalnon-operating items. Pro forma IAS 32 and 39 financial information Pro forma IFRS consolidated income statements and balance sheets including theeffects of applying IAS 32 and 39 for the period ended 30 June 2004 and the yearended 31 December 2004 have been provided in Appendix I to this report. Thefull adoption of both these standards is not mandatory until January 2005. IAS 32 and 39 have not been applied to 2004 transactions within entities thatwere fully disposed of in 2004, or to contracts containing embedded derivativesthat no longer existed as at 1 January 2005. In accordance with the transition rules applicable for first-time adopters,documentation and effectiveness calculations required for hedge accounting wereput in place as at 1 January 2005. Where hedge accounting has been applied witheffect from 1 January 2005, 2004 pro forma financial information has been statedon the same basis as if necessary documentation had been in place. AngloGold Ashanti, a Rand functional currency entity, issued a US dollarconvertible bond in February 2004. The pro forma financial informationclassifies the equity conversion option within this debt as a derivative withinliabilities, marked to market through the income statement. This is inaccordance with the recent clarification of IAS 32 by IFRIC set out in theirpublished update following their April 2005 meeting. This may be subject tochange as a result of future discussions between IFRIC and the IASB. 4. GROUP FINANCIAL INFORMATION RESTATED FOR IFRS 4.1 CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED31 DECEMBER 2004 4.1.1 Consolidated income statement for the year ended 31 December 2004 As previously Proportional UK GAAP IFRS IFRS consolidation adjustments reported under of joint revised (1) Notes UK GAAP ventures US$ million Turnover 31,795 - 31,795 (5,527) 26,268Share of joint ventures' turnover (1,195) 1,195 - - -Share of associates' turnover (5,670) - (5,670) 5,670 -Group turnover 1 24,930 1,195 26,125 143 26,268Total operating costs (21,869) (749) (22,618) (9) (22,627)Operating exceptional items 25 - 25 - 25Group operating profit(2) 1 3,086 446 3,532 134 3,666Share of joint ventures' operating profit 446 (446) - - -Share of associates' operating profit 1,065 - 1,065 (1,065) -Share of associates' exceptional items (117) - (117) 117 -Net income from associates(3) 1 - - - 550 550Total profit from operations and associates 4,480 - 4,480 (264) 4,216(4) Non-operating exceptional items 520 - 520 495 1,015Net finance costs (359) - (359) (8) (367)Profit before tax 4,641 - 4,641 223 4,864Income tax expense 4 (1,279) - (1,279) 356 (923)Profit for the financial year 3,362 - 3,362 579 3,941 Attributable toMinority interests 449 - 449 (9) 440Equity shareholders of the Company 2,913 - 2,913 588 3,501Total dividends paid and proposed (1,007) - (1,007) 180 (827)Retained profit 1,906 - 1,906 768 2,674 Basic earnings per share (US$):Profit for the year attributable to equity 6 2.03 - 2.03 0.41 2.44shareholdersDiluted earnings per share (US$)Profit for the year attributable to equity 6 1.96 - 1.96 0.39 2.35shareholders (1) IFRS adjustments exclude IAS 32 and IAS 39. Pro forma financial information including IAS 32 and 39 is set out inAppendix I to this release. (2) Group operating profit disclosed on the face of the income statement is presented on an IFRS presentation basis.This excludes the operating profit from associates. (3) $550 million includes the Group's share of associates' operating exceptional charges of $117 million, and is statednet of interest and tax in accordance with IAS 28. (4) Under UK GAAP, $4,480 million shown above represented operating profit, excluding all associates' interest, tax andunderlying minority interest. 4.1.2 Consolidated balance sheet as at 31 December 2004 Proportional UK GAAP IFRS IFRS consolidation adjustments As previously of joint revised (1) Notes reported under ventures UK GAAP US$ million Intangible fixed assets 2,590 17 2,607 37 2,644 Tangible fixed assets 31,155 1,534 32,689 483 33,172 Biological assets - - - 374 374 Environmental rehabilitation - - - 237 237 trusts Investments in associates 4,346 1 4,347 (861) 3,486 Fixed asset investments 889 (21) 868 216 1,084 Deferred tax assets - - - 128 128 Other non current assets - - - 66 66 Share of joint ventures 1,496 (1,496) - - - Total non current assets 40,476 35 40,511 680 41,191 Stocks 3,401 137 3,538 11 3,549 Trade and other receivables 5,449 219 5,668 (134) 5,534 Current tax assets 219 1 220 - 220 Current asset investments 575 - 575 (573) 2 Cash and cash equivalents 2,086 296 2,382 573 2,955 Total current assets 11,730 653 12,383 (123) 12,260 Total assets 52,206 688 52,894 557 53,451 Short term borrowings 3,333 50 3,383 - 3,383 Trade and other payables 5,984 129 6,113 (745) 5,368 Current tax liabilities 836 15 851 (20) 831 Total creditors due within one 10,153 194 10,347 (765) 9,582 year Medium and long term 7,449 368 7,817 - 7,817 borrowings Retirement benefit obligations 753 5 758 443 1,201 Deferred tax liabilities 2,908 130 3,038 2,528 5,566 Provisions for liabilities and 1,325 (9) 1,316 12 1,328 charges Total long term liabilities 12,435 494 12,929 2,983 15,912 Total liabilities 22,588 688 23,276 2,218 25,494 Minority Interests 4,620 - 4,620 (4,620) - Net assets 24,998 - 24,998 2,959 27,957 Equity Called-up share capital 747 - 747 - 747 Share premium account 1,633 - 1,633 - 1,633 Other reserves 4.1.4 1,205 - 1,205 1,886 3,091 Retained earnings 4.1.4 21,413 - 21,413 (3,515) 17,898 Total shareholders' equity 24,998 - 24,998 (1,629) 23,369 Minority interests 4.1.4 - - - 4,588 4,588 Total equity 24,998 - 24,998 2,959 27,957Related Shares:
Anglo American