28th Jul 2006 07:30
Anglo American PLC28 July 2006 News Release 28 July 2006 De Beers Societe Anonyme ("Dbsa") today reported underlying earnings for the sixmonths ended 30 June 2006 of US$308 million. Anglo American plc ("AA plc") arrives at its underlying earnings in respect ofDe Beers by accounting for the interests arising from the ordinary shares andthe 10% preference shares it holds in DB Investments ("DBI"). AA plc will therefore report underlying earnings of US$164 million for the sixmonths ended 30 June 2006 from its investment in DBI, as reconciled in the tablebelow: Reconciliation of underlying earnings for the six months ended 30 June 2006US$ million 6 months 6 months ended ended 30.6.06 30.6.05• DBI underlying earnings (100%) (1) 308 357• Adjustments (2) 9 4• DBI underlying earnings - AA plc basis (100%) 317 361• AA plc's 45% ordinary share interest 143 162• Income from preference shares 21 26• AA plc underlying earnings 164 188 (1) DBI underlying earnings is stated before costs of $45m in relation to theamended class action settlement agreement, and profits of $229m relating to thePonahalo BEE transaction concluded in April 2006. (2) Adjustments include the reclassification of the actuarial gains and lossesbooked to the income statement by Dbsa under the corridor mechanism of IAS19. On 30 June 2006, Dbsa redeemed a further 25% of the preference shares originallyin issue, taking the total redemption to 75% of the issue, and on that date AAplc received US$175 million, representing 25% of its original US$701 millionpreference share interest. AA plc now holds US$175 million of preference sharesin Dbsa. In the six months ended 30 June 2006, AA plc received a total of US$238 millionin distributions from DBI. These comprised US$26 million dividends, being thesecond payment on preference shares for 2005 (US$17million) and an earlydividend for 2006 on the redeemed preference shares (US$9million), and a sharepremium repayment of $212 million relating to the proceeds from the BlackEconomic Empowerment transaction. This transaction, which concluded on 18thApril 2006, resulted in 26% of De Beers Consolidated Mines Limited being sold toPonahalo Consortium for R3.7 billion. In the six months ended 30 June 2005, AA plc received from DBI a US$90 millionfinal dividend on ordinary shares relating to FY 2004, US$26 million dividendsrepresenting the second payment on preference shares for 2004, and US$9 millionrepresenting the first dividend for 2005 on the redeemed preference shares. Inthe second half of 2005, AA plc received a US$68 million interim dividend onordinary shares relating to FY 2005, a US$17 million interim dividend onpreference shares, and a combined ordinary dividend and share premium repaymentof $112m. Underlying Earnings Underlying Earnings is net profit attributable to equity shareholders, adjustedfor the effect of special items and remeasurements, and any related tax andminority interests. Special items are those items of financial performance whichare material by nature or amount and should therefore be separately presented.These principally relate to impairment and significant closure costs,exceptional legal provisions and profit or loss on disposals. Remeasurementsinclude (i) adjustments to ensure that the unrealised gains or losses onnon-hedge derivative instruments are recorded in underlying earnings in the sameperiod as the underlying transaction against which these instruments provide aneconomic, but not formally designated, hedge and (ii) foreign currency gains andlosses arising on the retranslation of dollar denominated De Beers preferenceshares held by a rand functional currency subsidiary of the Group. The above figures are unaudited. De Beers Societe Anonyme (Incorporated under the laws of Luxembourg) Friday, 28 July 2006 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 DIRECTORS' COMMENT While demand for diamond jewellery in the consumer markets has remained robust,with estimated growth of three to four percent on the record levels of 2005,more difficult trading conditions exist in the market for rough diamonds. Thisresults from the impact, on rough diamond demand, of higher interest rates,higher gold and platinum prices in the retail jewellery product, reduced marginsacross the distribution pipeline, and the increasing need to manage polishedinventory levels. In this environment, The Diamond Trading Company (DTC) has achieved sales in H12006 of US$3.25 billion, marginally above the same period in 2005. In line withrevenues, EBITDA is up two percent to US$748 million, while net earnings, beforethe class action payment and the surplus on sale of a 26% interest in De BeersConsolidated Mines (DBCM) , are down one per cent, reflecting tighter marginsand increased exploration spending. Cash flow from operating activitiesincreased from US$158 million to US$353 million. Adjusting for the impact ofcurrency and interest rate hedging transactions, underlying earnings, at US$308million, are down 14 percent. Financial Summary - H1 2006 US Dollar millions 2006 2005 % Change 6 months to 30 June 6 months to 30 JuneDTC Sales 3,252 3,220 +1EBITDA 748 736 +2Net Earnings before classaction payment and surpluson sale of 26% interest inDBCM 336 339 -1 Underlying Earnings 308 357 -14Cash available fromoperating activities 353 158 +123 Gearing 35.1% 28.7%Capital - expansion 394 90 +338 H1 2006 Operational Highlights • On 18 April, a groundbreaking empowerment transaction was completedresulting in the sale of 26 percent of DBCM, the South African mining arm of DeBeers, to Ponahalo, a broad-based, black economic empowerment consortium forR3.7 billion. This has resulted in a profit of US$229 million in theconsolidated income statement. This transaction represents, in the mosttangible way possible, De Beers' commitment to the concept of partnership in thecountries in which it operates. It is an evolution of our longstandingpartnerships with our other important stakeholder producers - Botswana, Namibiaand Tanzania. • On 23 May, De Beers signed a suite of agreements with the Governmentof Botswana covering the renewal of the Jwaneng mining licence, and theharmonisation of the Orapa, Letlhakane and Damtshaa licences, for a further 25years, the sale of Debswana's production to the DTC for a further five years andthe establishment, in partnership with government, of The Diamond TradingCompany (DTC) Botswana which will carry out local sales and marketingactivities. • Overall production at Group mines in Botswana, Namibia, South Africaand Tanzania rose four percent to a record 24.7 million carats while continuingto improve on our record safety performance. • Reflecting our recently embedded Purpose, Vision and Values, the DeBeers Family of Companies, together with industry, governments and leading NGOs,remains committed to playing a leading role in ensuring that diamonds make asignificant contribution to transforming the lives of people around the world,and particularly in Africa where they are fundamental to economic development. Growth and Investment • In Canada, the Snap Lake and Victor projects remain on track forcommissioning, as planned, in Q4 2007 and Q4 2008 respectively. Project costshave increased, principally due to higher energy and material costs in thecompetitive Canadian environment, technological and construction challenges andthe impact of the early closure of the winter road. De Beers remains excited bythe potential of these projects, and the opportunities in Canada in general.The Board has approved a total expenditure of CAD$2 billion to bring these twoprojects into production on schedule. • Two expansion projects have been approved in South Africa totallingR2.2 billion. South African Sea Areas (SASA), a marine mining project with aninvestment of R1 billion is on track for commissioning during the first quarterof 2008. Voorspoed mine, at R1.2 billion, has been approved by the board subjectto the granting of the necessary mining licence. • De Beers has significantly increased exploration in H1 2006,investing US$25 million more than in the corresponding period in 2005. Thisincludes the use of state-of-the-art geophysics technology deployed on aZeppelin in Botswana, and the re-establishment of full-scale programmes inAngola and the DRC, where we have access to some of the world's most diamondprospective ground. • 2006 results from the De Beers joint venture with LVMH in the retailsector have been good, with sales well up on 2005 in total and on alike-for-like basis. New stores have been opened in Japan and Dubai and furtherexpansion is planned in the US, UK, Japan and Taiwan. Regulatory • On 31 March, preliminary approval was granted by Honorable JudgeStanley Chesler of the US District Court for the State of New Jersey, on thesettlement of all outstanding class action suits in the US for a total of US$295million. This will now proceed through the required legal approval process whichwill not be completed until 2007. • De Beers accepted the revised commitments from the EuropeanCommission on the future of the DTC's trading relationship with Alrosa, whichwill terminate at the end of 2008. Outlook for H2 2006 In the short term, we expect rough diamond market conditions to remainchallenging, and constrain growth in second half DTC sales. On the back ofincreased DTC marketing expenditure and new marketing initiatives, expectationsremain positive for consumer diamond jewellery sales in the second half. Thisconsumer demand growth will, in the medium term, translate into increased demandfor rough diamonds. This is particularly so given the strong H2 2005 comparableswhen, against historical trends, DTC sold as much in H2 as in H1. In respect ofproduction, despite the closure of a number of South African mines, we expectfull year production to be up in the low single digits in carats. De Beers announces interim results as follows: De Beers Societe Anonyme Consolidated Income Statement for the half-year ended 30 June 2006 (Abridged) US Dollar millions 6 Months to 30 6 Months to 30 12 Months to 31 June 2006 June 2005 December 2005 Diamond sales -DTC 3 252 3 220 6 539 -Other 188 265 513Joint venture and other income 486 421 906 3 926 3 906 7 958Deduct:Cost of sales 2 924 2 914 5 906Sorting and marketing 171 199 484Exploration, research and development 126 106 242Group services and corporate overheads (Note 1) 68 43 140Net diamond account 637 644 1 186Deduct:Net finance charges (Note 2) 60 56 101Costs related to reorganisation and restructuring 13 12 19Income before taxation 564 576 1 066Taxation (Note 3) 224 228 283Income after taxation 340 348 783 Attributable to outside shareholders in subsidiaries (Note 24 3 14)Own earnings 316 345 782 Share of retained income of joint ventures 20 (6) 22Net earnings before class action payment and surplus on thesale of 26% of DBCM 336 339 804 Surplus in respect of the sale of 26% of DBCM (Note 4) 229 Payment in terms of class action settlement agreement (Note (45) (250)6) Net earnings 520 339 554 Underlying earnings reconciliation (Note 5) Net earnings before class action payment and surplus on the sale of 26% of DBCM 336 339 804Adjusted for : Surplus on realisation of fixed assets less provisions (5) (3) (14)Mine impairment and retrenchment costs 48Taxation and minority interests (14)(Gains ) losses on non hedge derivative financial (23) 21 16instrumentsUnderlying earnings 308 357 840EBITDA 748 736 1 393 Ordinary distributions in respect of: 2004 - Final 200 2002005 - Interim 150 150 - Final (including a partial repayment of share premium) 2502006 - Repayment of share premium 473 - Interim 150 De Beers Societe Anonyme Consolidated Balance Sheet 30 June 2006 (Abridged) US Dollar millions 30 June 2006 30 June 2005 31 December 2005 Ordinary shareholders' interests 3 515 3 663 3 597Outside shareholders' interests 282 130 104Total shareholders' interests 3 797 3 793 3 701Net interest bearing debt (Notes 2 & 7) 2 482 1 842 2 362Other liabilities 1 431 1 490 1 729 7 710 7 125 7 792 Fixed assets 5 928 5 196 5 790Investments and loans 89 76 66Diamond inventory and other assets 1 693 1 853 1 936 7 710 7 125 7 792Exchange rates US$ = Rand- average 6.14 6.17 6.39- period end 6.82 6.87 6.36 Cash flow information for the half-year ended 30 June 2006 Cash available from operating activities 353 158 473Investing activities Fixed assets - stay-in-business 97 115 248 - expansion 394 90 370 Investments (484) (1) 21 7 204 639 Financing activities Preference share capital redeemed 214 214 214 Share premium redeemed 473 (Increase) decrease in debt (443) (276) (645) Ordinary distributions 200 600 244 138 169 De Beers Societe Anonyme 30 June 2006 Notes and Comments 1. The incorporation of De Beers Group Services in 2005 has led toimproved cost accountability, resulting in certain costs being identified asgroup service costs which were previously included in cost of sales and sortingand marketing. 2. Preference share capital is included in net interest bearingdebt. Preference dividends, amounting to US$21 million (2005 : US$32 million)are included in finance charges. On 30 June 2006, the Company took advantage, for the third time, of an earlyredemption clause attaching to its 10 per cent preference shares in issue andredeemed the maximum permissible amount of US$214 million, or 25 per cent of thetotal originally in issue. 3. At the end of December 2005, following the approval of the VictorProject, the accumulated tax losses associated with the project were accountedfor as a deferred tax asset, reducing the tax charge for that year by US$148million. 4. De Beers concluded a broad based Black Economic Empowerment (BEE)transaction on 18 April which resulted in 26 percent of De Beers ConsolidatedMines Limited being sold to the Ponahalo Consortium for R3.7 billion. This hasresulted in a profit of US$229 million in the consolidated income statement. Asa result of the sale transaction, US$473 million has been returned toshareholders through a repayment of capital. The sale process involved, interalia, the arrangement of incremental financing of US$640 million in revolvingand term facilities and facilitation by De Beers in the form of guaranteesamounting to approximately US$130 million. With effect from 18 April, Ponahalo's share of DBCM's earningshas been included in income attributable to outside shareholders in subsidiariesin the income statement. The impact of the BEE transaction on underlyingearnings for the period and on net asset value is not material. 5. In previous reporting periods Headline Earnings were reported asa primary indicator of performance. In line with accepted practice, De Beersbelieves that the presentation of Underlying Earnings provides a betterindicative measure of underlying performance principally through the exclusionfrom earnings of significant non operating items and unrealised profits orlosses which arise due to the valuation impact of financial market volatility. Underlying earnings comprises net earnings attributable to shareholdersadjusted for the effect of any special items and remeasurements, less any taxand minority interests. Special items include closure costs, exceptional legalprovisions and profits and losses on disposals of assets. Remeasurements includeadjustments to ensure that the unrealised gains and losses on non hedgederivative instruments are recorded in underlying earnings in the same period asthe underlying transaction against which these instruments provide an economic,but not formally designated, hedge. 6. In terms of an amended class action settlement agreement dated 17March 2006, a further US$45 million was paid into escrow on 28 April 2006pending conclusion of the settlement process attaching thereto. 7. Cash has been offset against interest bearing debt. Contacts: De Beers London:Lynette Hori +44 20 7430 3509/+44 7740 393260 De Beers South AfricaNicola Wilson +27 11 374 7399/+27 83 299 5552 Visit the official De Beers group website for more information on the Companyand where you can view and download a selection of images - www.debeersgroup.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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