24th Aug 2005 07:01
BHP Billiton PLC24 August 2005 Release Time IMMEDIATEDate 24 August 2005Number 33/05 BHP BILLITON RESULTS FOR THE YEAR ENDED 30 JUNE 2005 • Record EBITDA, EBIT and attributable profit with year on year EBIT increases in every Customer Sector Group. • EBITDA up 52.5% to US$11.4 billion and EBIT up 70.0% to US$9.3 billion (both excluding exceptional items). • Attributable profit (excluding exceptional items) up 85.5% to US$6.5 billion and record available cash flow of US$8.7 billion. • Record annual production volumes for 11 commodities. • Eight major growth projects commissioned during the year with a further ten major projects under development. Current project pipeline of US$11.9 billion of new growth related investments. • Successful acquisition of WMC Resources Limited with integration proceeding to plan. • Final dividend of 14.5 US cents declared (a 52.6% increase above the 2004 final dividend), bringing the full year dividend to 28.0 US cents per share. +--------------------------------------------------------------------------+-------+-------+-------+| | 2005| 2004| Change||Year ended 30 June | US$M| US$M| |+--------------------------------------------------------------------------+-------+-------+-------+|Turnover (1) | 31 804| 24 943| 27.5%|+--------------------------------------------------------------------------+-------+-------+-------+|EBITDA (1) (2) (3) | 11 446| 7 506| 52.5%|+--------------------------------------------------------------------------+-------+-------+-------+|EBIT (1) (2) (3) | 9 330| 5 488| 70.0%|+--------------------------------------------------------------------------+-------+-------+-------+|Attributable profit (excluding exceptional items) (1) | 6 512| 3 510| 85.5%|+--------------------------------------------------------------------------+-------+-------+-------+|Attributable profit (including exceptional items) (1) | 6 398| 3 379| 89.3%|+--------------------------------------------------------------------------+-------+-------+-------+|Available cash flow (4) | 8 688| 5 100| 70.4%|+--------------------------------------------------------------------------+-------+-------+-------+|Basic earnings per share (US cents) (excluding exceptional items) (1) | 106.4| 56.4| 88.7%|+--------------------------------------------------------------------------+-------+-------+-------+|Basic earnings per share (US cents) (including exceptional items) (1) | 104.5| 54.3| 92.4%|+--------------------------------------------------------------------------+-------+-------+-------+|EBITDA interest coverage (times) (1) (2) (3) (5) | 34.7| 21.1| 64.4%|+--------------------------------------------------------------------------+-------+-------+-------+|Dividend per share (US cents) | 28.0| 26.0| 7.7%|+--------------------------------------------------------------------------+-------+-------+-------+ (1) Including the Group's share of joint ventures. (2) Excluding exceptional items. (3) EBIT is earnings before interest and tax. EBITDA is EBIT beforedepreciation, impairments, and amortisation of US$2,116 million (comprisingGroup depreciation, impairments and amortisation of US$1,968 million and jointventure depreciation and amortisation of US$148 million) for the year ended 30June 2005 and US$2,018 million (comprising Group depreciation, impairments andamortisation of US$1,867 million and joint venture depreciation and amortisationof US$151 million) for the year ended 30 June 2004. We believe that EBIT andEBITDA provide useful information, but should not be considered as an indicationof, or alternative to, attributable profit as an indicator of operatingperformance or as an alternative to cash flow as a measure of liquidity. (4) Available cash flow is operating cash flow including dividends from jointventures and after net interest and tax. (5) For this purpose, net interest includes capitalised interest and excludesthe effect of discounting on provisions and other liabilities, and exchangedifferences arising from net debt. The above financial results are prepared in accordance with UK generallyaccepted accounting principles (GAAP) and are unaudited. Financial results inaccordance with Australian GAAP are provided on page 32. All references to thecorresponding period are to the year ended 30 June 2004. RESULTS FOR THE YEAR ENDED 30 JUNE 2005 Commentary on the Group Results Introduction The consistent execution of the BHP Billiton business strategy has positionedthe Group to take advantage of the current strong market conditions and deliveranother record result. Attributable profit, excluding exceptional items, ofUS$6.5 billion is an increase of 85.5% from the previous year with availablecash flow (after interest and tax) of US$8.7 billion up 70.4% over last year.The benefits of commodity diversification, focussing on large, low cost, longlife assets, capturing and sharing efficiencies across our businesses globallyand the identification of, and continued investment in, value adding growthopportunities throughout the cycle, are not only reflected in the current resultbut enable us to capture our share of demand growth from the rapidly developingregions of the world. During the year, the Group brought eight new growth projects into production,bringing to 24 the total number of major growth projects delivered over the lastfour years. This, in combination with the continuing benefit derived fromoperational excellence initiatives, contributed to record production beingachieved in 11 commodities including iron ore, metallurgical coal, natural gas,aluminium, nickel, silver, and manganese ore and alloy, at a time of strongdemand and increased product prices. Production volumes for energy coal andcopper also increased during the current financial year. Record production wascomplemented by record shipments for a number of commodities reflecting, inpart, the benefits of operating our own port facilities and providing freightsolutions for an increasing proportion of our customers. Four further major growth projects were approved during the year: Spence coppercathode project (Chile), Rapid Growth Project 2 in iron ore, North West ShelfLNG Train 5 (both Australia) and the Neptune oil and gas project (US). Thisbrings the total number of major projects currently under development to ten andrepresents a total investment of US$5.4 billion. We also have four smallerprojects under development. In total, our pipeline of projects in execution orfeasibility currently represents US$11.9 billion of growth related investments.In addition, the successful acquisition of WMC Resources Limited (WMC),represents a further investment of US$7.2 billion, and immediately adds worldclass assets to the Group's existing nickel and copper businesses, as well asintroducing uranium to the Group's suite of energy products. In combination,these investments position us to respond to customer demand globally and enhancethe option value embedded in our asset portfolio. The Group's strong cash flow also underpins the Group's balance sheet strengthand allows for increasing returns to shareholders. In November 2004 the Groupcompleted an off-market share buyback programme by spending US$1.78 billion torepurchase 180.7 million of BHP Billiton Limited shares at A$12.57, at what wasan attractive discount to the market price. In February 2005, we announced therebasing of our dividend payment from 9.5 to 13.5 US cents per share. TheGroup's progressive dividend policy continues, with the announcement today of afinal dividend of 14.5 US cents per share. This represents a full 5.0 US centincrement on last year's final dividend and brings the total dividends for the2005 financial year to 28.0 US cents per share. WMC Acquisition In March 2005 the Group announced a cash offer for WMC, an Australian basedresource company. As of 30 June 2005 BHP Billiton owned approximately 93% ofWMC, with 100% ownership achieved on 2 August. BHP Billiton's results for the2005 financial year include the contribution from WMC for the month of June2005. This transaction provides the ability to build on the Group's existing nickeland copper businesses, as well as introducing uranium to our suite of energyproducts. In addition to providing immediate production to service globalcustomers, the acquisition provides significant growth opportunities. Thetransaction is fully aligned with our strategy of developing, operating andmaximising the performance of large, long life, low cost assets and provided aunique opportunity to acquire operational tier 1 assets in a stable, developedeconomy well positioned to service the growing demand for commodities in Asia. The planning process for the integration of the WMC assets into the BHP Billitonportfolio began in late 2004, and a dedicated integration team has been in placesince our bid was announced in March 2005. This integration, critical to theearly realisation of value, is proceeding to plan. Unfortunately, as aconsequence, in excess of 400 permanent positions (including those filled viacontractors) are expected to be eliminated. The one-off cost generated by thisactivity is expected to be in line with previous advice, and US$50 million ofthis amount has been expensed in the current period as an exceptional item.Annual corporate cost efficiencies are expected to be in line with previousadvice of A$115 million. The management of the former WMC assets has now been devolved to the StainlessSteel Materials, Base Metals, and Diamonds and Speciality Products CustomerSector Groups (CSGs), and the financial results of the assets are reportedwithin these groups. The Income Statement Earnings excluding exceptional items Turnover (including turnover from third party product) was US$31.8 billion, anincrease of 27.5% from US$24.9 billion in the corresponding period. The increasewas primarily due to higher prices for all commodities with base metals, carbonsteel materials, petroleum and energy coal prices contributing significantly.Increased volumes also benefited the Group result. Sales of third party productincreased slightly above the corresponding period to US$6.9 billion. Earnings before interest, tax, depreciation, impairments and amortisation(EBITDA) excluding exceptional items, increased by 52.5% to US$11.4 billion fromUS$7.5 billion in the corresponding period. Earnings before interest andtaxation (EBIT), excluding exceptional items, were US$9.3 billion compared withUS$5.5 billion for the corresponding period, an increase of 70.0%. The following table and commentary detail the approximate impact of theprincipal factors that affected earnings before interest and taxation for thecurrent year ended 30 June 2005 compared with the corresponding period: +----------------------------------------------------------------------------------------+---------------+| | |+----------------------------------------------------------------------------------------+---------------+| | US$ Million|+----------------------------------------------------------------------------------------+---------------+|EBIT excluding exceptional items for the year ended 30 June 2004 | 5 488|+----------------------------------------------------------------------------------------+---------------+|Change in volumes | 110|+----------------------------------------------------------------------------------------+---------------+|Change in sales prices | 5 665|+----------------------------------------------------------------------------------------+---------------+|New operations | 140|+----------------------------------------------------------------------------------------+---------------+|Asset sales | 5|+----------------------------------------------------------------------------------------+---------------+|Exchange rates | (465)|+----------------------------------------------------------------------------------------+---------------+|Price-linked costs | (565)|+----------------------------------------------------------------------------------------+---------------+|Costs | (775)|+----------------------------------------------------------------------------------------+---------------+|Inflation on costs | (235)|+----------------------------------------------------------------------------------------+---------------+|Ceased and sold operations | (190)|+----------------------------------------------------------------------------------------+---------------+|Exploration | (20)|+----------------------------------------------------------------------------------------+---------------+|Other | 172|+----------------------------------------------------------------------------------------+---------------+| | |+----------------------------------------------------------------------------------------+---------------+|EBIT excluding exceptional items for the year ended 30 June 2005 | 9 330|+----------------------------------------------------------------------------------------+---------------+| | |+----------------------------------------------------------------------------------------+---------------+ Volumes Higher sales volumes (measured at last year's average margins) increased EBIT byUS$110 million. Increased sales volumes of iron ore, copper, natural gas,aluminium, silver and lead contributed approximately US$350 million, and waspartially offset by US$265 million of unfavourable impacts resulting from loweroil volumes, due to natural field decline and planned shutdowns for maintenanceactivities, and lower diamond sales. Prices Stronger commodity prices across the suite of products increased EBIT byUS$5,665 million, with higher prices achieved for iron ore, copper,metallurgical coal, petroleum products, energy coal, aluminium, manganese alloy,nickel and diamonds being the predominant contributors. New operations New operations increased EBIT by US$140 million, primarily due to firstproduction from ROD (Algeria) which commenced commercial production in October2004, the first full year of production from Ohanet (Algeria) which commencedcommercial production in October 2003, and the start of oil production from MadDog (US) in January 2005. The acquisition of WMC also resulted in a US$35 million favourable impact onEBIT with the inclusion of profit for the month of June. Asset sales The current period's EBIT included US$5 million of additional profits on thesale of non-core assets. In addition, further profits on the sale of non-coreassets have been included in exceptional items. Exchange rates Relative to the prior year, exchange rate movements had a negative impact onEBIT of US$465 million. The continued strength of the Australian dollar and randagainst the US dollar had an overall unfavourable impact on operating costs andtranslation of net monetary liabilities of US$320 million and US$30 millionrespectively. In addition, the prior period included gains on legacy Australiandollar to US dollar currency hedging of US$39 million which expired during thatyear. +------------------------------+-------------+-------------+-------------+-------------+|Currency | Year ended| Year ended| 30 June 2005| 30 June 2004|| | 30 June 2005| 30 June 2004| closing| closing|| | average| average| | |+------------------------------+-------------+-------------+-------------+-------------+| | | | | |+------------------------------+-------------+-------------+-------------+-------------+|US dollar : Australian dollar | 0.75| 0.71| 0.76| 0.69|+------------------------------+-------------+-------------+-------------+-------------+|South African rand : US dollar| 6.21| 6.89| 6.67| 6.27|+------------------------------+-------------+-------------+-------------+-------------+ Price-linked costs Higher price-linked costs decreased EBIT by US$565 million, primarily due tohigher amounts of tax paid on petroleum products in Australia, higher royaltiesand increased LME-linked costs. Costs Increased costs of US$775 million were primarily due to higher fuel, labour, rawmaterial and other operating costs, an increase in stripping and maintenancerelated activities and development expenditure. The increase in costs wascaused, in part, by the increased level of activity currently experienced in theresources industry. Although the impact is of varying degrees globally, thesepressures are particularly acute in Australia. A portion of the increase incosts was deliberately incurred by the Group to maximise production to capturecurrent prices. Increased costs were partially offset by continued operatingcost savings from improvement initiatives and efficiency gains. Inflation on costs Inflationary pressures, mainly in Australia and South Africa, had anunfavourable impact on EBIT of US$235 million. Ceased and sold operations Ceased and sold operations had an unfavourable impact of US$190 million andincludes US$135 million relating to ceased production at Boodarie Iron inWestern Australia after it was placed on care and maintenance during the year.The unfavourable impact also included the loss of earnings from the Laminariaand Corallina oil fields following their sale in January 2005. Exploration Exploration expense was US$20 million higher than the corresponding period. Other Other items increased EBIT by US$172 million and include the favourable impactof earnings from sales of third party product, benefits of freight riskmanagement activities, and profit on the close out of cash settled derivativecontracts for WMC shares. Net interest expense Despite higher US dollar interest rates, net interest expense fell from US$502million to US$421 million during the period. This was principally driven bylower average debt levels and increased interest income from higher average cashbalances and higher interest earning rates compared to the corresponding period.This was partially offset by higher expense from discounting of provisions andlower capitalisation of interest. The corresponding period included exchangelosses on net debt of US$133 million, primarily related to the translation ofrand denominated debt. Taxation expense The tax charge on earnings, excluding exceptional items, was US$2,215 million,representing an effective rate of 24.9%. Excluding the impacts of nontax-effected foreign currency adjustments, translation of tax balances and otherfunctional currency translation adjustments, the effective rate was 26.2%. Whencompared to the UK and Australian statutory tax rate (30%), the underlyingeffective tax rate benefited 3.9% due to the recognition of US tax losses(US$350 million). In addition, investment incentives and developmententitlements were recognised during the period which were offset, to someextent, by non-deductible accounting depreciation and amortisation and otheritems. Exceptional items Exceptional items reduced profit after taxation (before minority interests) byUS$64 million and attributable profit by US$114 million, and incorporated theitems outlined below. Profit on disposal of various assets and interests totalled US$298 million(US$282 million after tax and before minority interests) and included: +----------------------------------------+----------+-----------------------------+-------+|US$ million | Proceeds| Profit before tax| Tax|+----------------------------------------+----------+-----------------------------+-------+|Laminaria & Corallina oil fields | 130| 134| (10)|+----------------------------------------+----------+-----------------------------+-------+|Chrome business | 433| 108| (6)|+----------------------------------------+----------+-----------------------------+-------+|Interest in North West Shelf | 59| 56| -|+----------------------------------------+----------+-----------------------------+-------+|Total | 622| 298| (16)|+----------------------------------------+----------+-----------------------------+-------+ • The Group disposed of its interest in the Laminaria and Corallina oil fields to Paladin Resources plc in January 2005; • BHP Billiton disposed of its economic interest in the majority of its South African chrome business to the Kermas Group in June 2005. In addition, the Group sold its interest in the Palmiet chrome business to Mogale Alloys in May 2005. After the minority share of profit after tax of US$50 million, the Group's share arising from the sale of the chrome businesses was US$52 million; and, • In December 2004 the sale of an equity participation in the North West Shelf (NWS) Project's gas reserves in Western Australia to China National Offshore Oil Corporation (CNOOC) was completed. Following a decision to close the Boodarie Iron (Australia) operationspermanently as of today, a charge of US$266 million (US$80 million tax benefit)relating to termination of the operation has been recognised. The chargeprimarily relates to settlement of existing contractual arrangements, plantdecommissioning, site rehabilitation, redundancy and other costs associated withthe closure. As part of the Group's regular review of decommissioning and site restorationplans, the Group reassessed plans in respect of certain closed operations. Atotal charge US$121 million (US$104 million after tax) was recorded andincluded: • A charge of US$73 million (US$21 million tax benefit) in relation to revision of the Group's assessed rehabilitation obligation at closed mines at Ingwe (South Africa), predominantly resulting from revised water management plans; and, • A charge of US$48 million (US$4 million tax expense) in relation to other closed mining operations. The Group is required to recognise provisions and record a charge of US$79million (US$56 million after tax) against earnings in respect of restructuringcertain operations. This included US$50 million (US$15 million tax benefit) inrespect of restructuring associated with the acquisition of WMC in June 2005primarily relating to redundancy and termination costs, office closures andtermination of previous contractual arrangements, and US$29 million (US$8million tax benefit) for other restructurings, primarily for redundancies atIngwe (South Africa). The corresponding period included exceptional items as follows: • A charge of US$534 million (US$512 million after tax) in relation to certain closed operations; • A gain of US$66 million (US$48 million after tax) in relation to a settlement with Dalmine SpA with respect to the failure of an underwater pipeline; • A tax benefit of US$95 million resulting from the restatement of deferred tax balances following the election to consolidate Australian subsidiaries under the Australian tax consolidation regime; and, • A tax benefit of US$238 million arising from prior period taxation deductions and foreign tax credits available in the US and Canada. Cash Flows Available cash flow after interest and tax increased by 70.4% to US$8.7 billion.The key components of this increase were increased cash generated from operatingactivities (mainly due to higher profits), partly offset by increased taxationpayments. Spending on capital, exploration and investment expenditures totalled US$11.0billion for the period. Expenditure on growth projects and investments amountedto US$10,467 million, including US$6,594 million for the acquisition of WMC,US$845 million on petroleum projects and US$1,869 million on minerals projects.Sustaining and maintenance capital expenditure was US$1,159 million. Totalexpenditure on exploration was US$533 million, including US$380 million onpetroleum activities and US$153 million on minerals activities. In addition, thecurrent period includes US$1.78 billion for the repurchase of shares as part ofthe US$2 billion capital management programme. Net debt at 30 June 2005 was US$9.7 billion, an increase of US$4.7 billion forthe period. Gearing, which is the ratio of net debt to net debt plus netassets, was 35.7% at 30 June 2005, compared with 25.7% at 30 June 2004. Thesignificant increase in net debt relates to debt financing for the acquisitionof WMC. In prior communication the Company had estimated that gearing at 30 June2005, following the WMC acquisition, would be 42%. The strong cash flows fromthe WMC and BHP Billiton businesses have resulted in a significantly lowergearing level. Dividend A final dividend for the year ended 30 June 2005 of 14.5 US cents per share willbe paid to shareholders on Wednesday, 28 September 2005. An interim dividend of13.5 US cents per share was paid to shareholders on 23 March 2005. That dividendincluded US$220 million (3.6 US cents per share) to complete the US$2 billioncapital management programme announced in August 2004. BHP Billiton intends tocontinue with its progressive dividend policy. The dividend paid by BHP Billiton Limited will be fully franked for Australiantaxation purposes. Dividends for the BHP Billiton Group are determined anddeclared in US dollars. However, BHP Billiton Limited dividends are mainly paidin Australian dollars and BHP Billiton Plc dividends are mainly paid in poundssterling to shareholders on the UK section of the register and rands toshareholders on the South African section of the register. The foreign currencyexchange rates applicable two business days before the declaration of thedividend were used for conversion of currencies. These rates are detailed in thetable below. The timetable in respect of this dividend will be: Currency conversion - 22 August 2005 Last day to trade Johannesburg Stock Exchange - 2 September 2005 Ex-dividend Australian Stock Exchange - 5 September 2005 Ex-dividend Johannesburg Stock Exchange - 5 September 2005 Ex-dividend London Stock Exchange - 7 September 2005 Record - 9 September 2005 Payment - 28 September 2005 American Depositary Shares (ADSs) each represent two fully paid ordinary sharesand receive dividends accordingly. BHP Billiton Plc shareholders registered on the South African section of theregister will not be able to dematerialise or rematerialise their shareholdings,nor will transfers between the UK register and the South African register bepermitted, between the dates of 5 September 2005 and 9 September 2005. The following table details the currency exchange rates applicable for thedividend: +-----------------------------+---------------+---------------------------+|Dividend 14.5 US cents | Exchange| Dividend per ordinary|| | Rate| share in local currency|+-----------------------------+---------------+---------------------------+|Australian cents | 0.755061| 19.203746|+-----------------------------+---------------+---------------------------+|British pence | 1.800675| 8.052536|+-----------------------------+---------------+---------------------------+|South African cents | 6.478365| 93.936293|+-----------------------------+---------------+---------------------------+|New Zealand cents | 0.696000| 20.833333|+-----------------------------+---------------+---------------------------+ Liquidity and Capital Management In October 2004, Moody's Investor Services (Moody's) upgraded BHP Billiton'scredit rating from A2 to A1, reflecting the Group's strengthened financial riskprofile. In March 2005, following the announcement of the takeover offer for WMC,Standard and Poor's (S&P) and Moody's reviewed the Group's rating, with S&Pmaintaining the Group's A+ stable rating and Moody's placing the outlook ondeveloping. In June 2005 Moody's restored the Group's outlook to stable statingthat the rating affirmation was prompted by the successful acquisition of WMC atthe price and on the terms anticipated. During the year, the Group completed both stages of its US$2 billion capitalmanagement programme. Stage one was completed in November 2004 via a US$1.78billion off-market share buy-back of 180.7 million BHP Billiton Limited sharesor 2.9% of the issued capital of the BHP Billiton Group. The shares werepurchased at A$12.57 per share, representing a 12% discount to the volumeweighted average price of BHP Billiton shares over the five days up to andincluding the buy-back closing date. The residual US$220 million was used torebase the interim dividend declared in February 2005. Portfolio Management During the year, the ongoing review of the asset portfolio continued to ensurealignment with our strategy of owning and operating large, low cost, long lifeassets. As a result, the Group acquired WMC (as detailed on page 3), disposed ofits economic interests in the majority of its South African chrome business inJune 2005 and sold our interests in the Laminaria and Corallina Oil Fields(located in the Timor Sea) in January 2005. Our equity interest in IntegrisMetals (US) was sold for proceeds of US$202 million in January 2005. We havealso sold 50% of our shareholding in Acerinox S.A for proceeds of US$56 million,and a 5.8% equity participation in the gas reserves associated with the NorthWest Shelf Project to CNOOC. Since July 2001, total proceeds on the sale ordivestment of assets totalled US$4.6 billion, including US$1.8 billion from thedemerger of the BHP Steel business. Corporate Governance IFRS Implementation The Group will commence reporting financial information in accordance withInternational Financial Reporting Standards (IFRS) for financial periodsbeginning on or after 1 July 2005. On 19 May 2005 the Group released unauditedselected financial information for the half year to 31 December 2004 prepared inaccordance with IFRS together with a reconciliation from IFRS to UK GenerallyAccepted Accounting Principles, and explanatory notes. In addition, as required by regulation and accounting standards applicable forthe year ended 30 June 2005, the Group's Annual Financial Statements willinclude disclosures detailing the impact of IFRS for the year ended 30 June2005. This will form the basis for the comparatives in the Group's 30 June 2006Annual Financial Statements, to be prepared under IFRS. Outlook As noted at the time of our interim results in February, global economic growthrates have slowed from the exceptionally high levels seen in 2004. In the UnitedStates growth rates continue above the long-term trend, but we expect higherinterest rates and higher energy prices to keep growth rates below last year'slevel. Elsewhere, leading indicators point to a slowing in Japan after astronger than anticipated first half, whilst the growth environment in Europegenerally remains challenging. However, the emerging economies do remainbuoyant, offsetting slowing growth in the OECD nations. As a result, we continueto expect the global economy to experience an above trend growth rate this year,thereby providing a sound underpin for commodity demand. We have not altered ourview that China will remain a large and sustainable consumer of raw materialsand resources over the coming decades and the Chinese government's recentlyannounced measures to tackle the excessive growth rates in certain sectors oftheir economy are to be welcomed. Having said this, we also believe thatdeveloping economies, like all economies, will be subject to business cycleswhich will impact economic activity from time to time. Whilst our financial results illustrate the benefit we gain from the currenthigh price environment, the underlying strategy of the company remainsunchanged. Prices will inevitability ease from their highs as demand growthslows and new supply comes on stream, although we continue to expect prices toremain high by recent historical standards. As we said in February, we areseeing capacity utilisation rates at extremely high levels and the resourcesindustry continues to suffer from a lack of latent capacity to act as swingproduction. This lack of capacity is compounded by logistical and infrastructurebottlenecks in many regions and this, combined with the pressure on constructionand operating costs translates to a higher risk of supply side shocks than wouldotherwise be the case. Price volatility therefore is not unexpected, and ourfocus remains on ensuring that we have a robust, long life and low costportfolio of assets capable of generating strong returns and stable cash flowsthroughout the cycle. Our track record of bringing on material levels of new production over the pastfour years has illustrated the unrealised option value within our resource base.Having the reinvestment opportunities and rigorous systems and processes tobring on further new production to meet the demand that we see over the longerterm is critical. It is management's ability to manage its existing asset baseand to exercise value accretive expansion options, in the form of the expansionof existing operations, new projects, and acquisitions, that will drive thefuture success of our business. Annual General Meetings The Annual General Meeting of BHP Billiton Plc will be held at the QueenElizabeth II Conference Centre, Broad Sanctuary, Westminster, London, onThursday 20 October 2005 commencing at 10:30 am. The Annual General Meeting ofBHP Billiton Limited will be held at the Convention Exhibition Centre, 21 MountsBay Road, Perth, on Friday 25 November 2005 commencing at 10:30 am. The AnnualReport and details of the business to be conducted at the meetings will bemailed to shareholders in mid to late September 2005. Growth Projects Eight projects were commissioned during the 2005 financial year. With costingyet to be finalised on the Panda project, total capital expenditure throughoutthe development phase of these projects is expected to be US$1,786 million,which is slightly above budget. Completed projects +--------------+--------------------+----------------------------------+-------------+--------------------+| Customer | Project | Capacity (1) | Capital | Date of initial || Sector Group | | | expenditure | production (2) || | | |(US$ million)| || | | | (1) | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| | | |Budget|Actual| Target | Actual |+--------------+--------------------+----------------------------------+------+------+----------+---------+|Petroleum |North West Shelf |4.2 million tonnes per annum | | | | || |Train 4 |liquefaction processing facility | 247| 252| Mid 2004|Sept 2004|| |(Australia) |(100%) | | | | || |BHP Billiton - 16.7%| | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| |ROD |28,800 barrels of oil equivalent | | | | || |(Algeria) |per day | 192| 192| Q4 2004| Oct 2004|| |BHP Billiton - 36% | | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| |Gulf of Mexico |Capacities of: | | | | || |Pipelines |Oil - 450,000 barrels of oil | 132| 132| Q4 2004| Dec 2004|| |Infrastructure |equivalent per day (100%) | | | | || |(US) |Gas - 500 million standard cubic | | | | || |BHP Billiton - Gas |feet per day (100%) | | | | || |22%; Oil 25% | | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| |Minerva |150 terrajoules of gas per day | | | | || |(Australia) |(100%) | 150| 157| Q4 2004| Jan 2005|| |BHP Billiton - 90% | | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| |Mad Dog |26,290 barrels of oil equivalent | | | | || |(US) |per day | 368| 370| End 2004| Jan 2005|| |BHP Billiton - 23.9%| | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| |Angostura |45,000 barrels of oil equivalent | | | | || |(Trinidad) |per day | 327| 337| End 2004| Jan 2005|| |BHP Billiton - 45% | | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+|Carbon Steel |Dendrobium |5.2 million tonnes per annum of | | | | ||Materials |(Australia) |raw coal | 200| 200| Mid 2005| Apr 2005|| |BHP Billiton - 100% |(3.6 million tonnes per annum of | | | | || | |clean coal) | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+|Diamonds & |Panda Underground |4.7 million carats of high value | | | | ||Specialty |(Canada) |diamonds over six years (100%) | 146|146(3)|Early 2005| Apr 2005||Products |BHP Billiton - 80% | | | | | |+--------------+--------------------+----------------------------------+------+------+----------+---------+| | | | 1,762| 1,786| | |+--------------+--------------------+----------------------------------+------+------+----------+---------+ (1) All references to capital expenditure and capacity are BHP Billiton's shareunless noted otherwise.(2) References to quarters and half years are based on calendar years.(3) Total project costs yet to be finalised. Share of actual capital expenditureis indicative only. There are 10 major projects (defined as BHP Billiton's share of capitalexpenditure of greater than US$100 million) under development with a totalbudgeted investment of US$5,439 million. Full details on these are given in thequarterly Exploration and Development Report, released on 28 July 2005. Projects approved during the year +----------------------------+-----------------------+-------------------+---------------+-----------------+| Customer Sector Group | Project | Capacity (1) | Budgeted | Target date for || | | | capital | initial || | | | expenditure | production (2) || | | | (US$ million) | || | | | (1) | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Petroleum |Neptune |50,000 barrels of | | || |(US) |oil and 50 million | 300| End 2007|| |BHP Billiton - 35% |cubic feet of gas | | || | |per day (100%) | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+| |North West Shelf 5th |LNG processing | | || |Train |capacity 4.2 | 250| Late 2008|| |(Australia) |million tonnes per | | || |BHP Billiton - 16.7% |annum (100%) | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Base Metals |Spence |200,000 tonnes per | | || |(Chile) |annum of copper | 990| Q4 2006|| |BHP Billiton - 100% |cathode | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Carbon Steel Materials |WA Iron Ore Rapid |Increase system | | || |Growth Project 2 |capacity to 118 | 489| H2 2006|| |(Australia) |million tonnes per | | || |BHP Billiton - 85% |annum | | || | |(100%) | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+| | | | 2,029| |+----------------------------+-----------------------+-------------------+---------------+-----------------+ (1) All references to capital expenditure and capacity are BHP Billiton's shareunless noted otherwise.(2) References to quarters and half years are based on calendar years. Projects currently under development (approved in prior years) +----------------------------+-----------------------+-------------------+---------------+-----------------+| Customer Sector Group | Project | Capacity (1) | Budgeted | Target date for || | | | capital | initial || | | | expenditure | production (2) || | | | (US$ million) | || | | | (1) | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Petroleum |Atlantis South |200,000 barrels of | 1,115| Q3 2006|| |(US) |oil and 180 million| | || |BHP Billiton - 44% |cubic feet of gas | | || | |per day (100%) | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Aluminium |Worsley Development |250,000 tonnes per | 165| Q1 2006|| |Capital Projects |annum of alumina | | || |(Australia) |(100%) | | || |BHP Billiton - 86% | | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Base Metals |Escondida Norte |Maintain capacity | 230| Q4 2005|| |(Chile) |at 1.25 million | | || |BHP Billiton - 57.5% |tonnes per annum of| | || | |copper (100%) | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+| |Escondida Sulphide |180,000 tonnes per | 500| H2 2006|| |Leach |annum of copper | | || |(Chile) |cathode (100%) | | || |BHP Billiton - 57.5% | | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+|Stainless Steel Materials |Ravensthorpe Nickel |Up to 50,000 tonnes| 1,050(3)| Q2 2007|| |(Australia) |per annum of | | || |BHP Billiton -100% |contained nickel in| | || | |concentrate | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+| |Yabulu Extension |45,000 tonnes per | 350(3)| End 2007|| |(Australia) |annum of nickel | | || |BHP Billiton - 100% | | | |+----------------------------+-----------------------+-------------------+---------------+-----------------+| | | | 3,410| |+----------------------------+-----------------------+-------------------+---------------+-----------------+ (1) All references to capital expenditure and capacity are BHP Billiton's shareunless noted otherwise.(2) References to quarters and half years are based on calendar years.(3) Project costs are currently under review. CUSTOMER SECTOR GROUP SUMMARY The following table provides a summary of the Customer Sector Group results forthe year ended 30 June 2005 and the corresponding period (before exceptionalitems). +--+--------------------------------------------------+--------------------+--+------------------+--+| | | | | | || | | | | | |+--+--------------------------------------------------+--------------------+--+------------------+--+| |Year ended 30 June (US$ Million) | Turnover (1) | | EBIT (1) | || | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| | | 2005| 2004|Change| | 2005| 2004|Change| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| | | | | | | | | | || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Petroleum | 5 970| 5 558| 7.4%| |1 830|1 391| 31.6%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Aluminium | 5 265| 4 432| 18.8%| | 977| 776| 25.9%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Base Metals | 5 071| 3 422| 48.2%| |2 177|1 156| 88.3%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Carbon Steel Materials | 7 606| 4 857| 56.6%| |2 821|1 137|148.1%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Diamonds and Specialty Products | 1 544| 1 710|(9.7%)| | 417| 410| 1.7%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Energy Coal | 3 390| 2 569| 32.0%| | 616| 234|163.2%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Stainless Steel Materials | 2 274| 1 749| 30.0%| | 758| 571| 32.7%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Group and unallocated items (2) | 798| 725| 10.1%| |(266)|(187)| N/A| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |Less: inter-segment turnover | (114)| (79)| N/A| | | | | || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+| |BHP Billiton Group |31 804|24 943| 27.5%| |9 330|5 488| 70.0%| || | | | | | | | | | |+--+--------------------------------------------------+------+------+------+--+-----+-----+------+--+ (1) Turnover and EBIT include trading activities comprising the sale of thirdparty product.(2) Includes consolidation adjustments, unallocated items and external salesfrom the Group's freight, transport and logistics operations. Petroleum EBIT was US$1,830 million, an increase of US$439 million or 31.6%, compared withthe corresponding year. The increase was mainly due to higher average realisedprices for all petroleum products compared with the corresponding period,including a higher average realised oil price per barrel of US$47.16 compared toUS$32.24, and higher average realised natural gas prices of US$2.98 per thousandstandard cubic feet compared with US$2.62 per thousand standard cubic feet. Newproduction from North West Shelf LNG Train 4 (Australia), ROD (Algeria) and MadDog (US), the first full year of production from Ohanet (Algeria), and profitsfrom the sale of third party product compared with losses in the correspondingperiod also had a favourable impact. These factors were partly offset by the unfavourable effect of higherprice-linked costs, lower crude and condensate volumes due to natural fielddecline at mature assets, higher downtime for maintenance, and disposal of ourinterests in the Laminaria and Corallina oil fields. The impact of a strongerAustralian dollar to US dollar exchange rate on the translation of net monetaryliabilities also had an unfavourable impact. Exploration expenditure charged to profit was US$202 million (2004: US$181million) reflecting a capitalisation rate of 46.8% (2004: 46.8%). Grossexpenditure on exploration of US$380 million was US$40 million higher than theprior period, reflecting increased exploration activity in the Gulf of Mexicoand Australia. Aluminium EBIT was US$977 million, an increase of US$201 million or 25.9%, compared withthe corresponding period. The increase was mainly attributable to higherrealised prices for aluminium and alumina. The average LME aluminium priceincreased to US$1,804 per tonne, compared with US$1,570 per tonne in thecorresponding period. Higher aluminium sales volumes, mainly reflecting thefirst full year of production from the expansion at Hillside (South Africa)following commissioning in December 2003 and the benefits of various operationalexcellence projects, also had a favourable impact. These factors were partially offset by the unfavourable impact on operatingcosts of a stronger South African rand, Australian dollar and Brazilian realagainst the US dollar and higher LME price-linked and other production inputcosts. Increased pot relining activity also had an unfavourable impact. Inaddition, a one-off charge of US$36 million was recorded for the agreedrepurchase of an aluminium supply contract. The benefits of this repurchase willbe realised through increased profit over the next ten years. Base Metals EBIT was US$2,177 million, an increase of US$1,021 million or 88.3%, comparedwith the corresponding year. This increase was mainly attributable to higheraverage LME prices for copper of US$1.43/lb compared to US$1.06/lb in theprevious period, higher prices for molybdenum, silver, lead and zinc, and highercopper sales volumes. Record silver and lead production achieved at Cannington(Australia), record copper production at Escondida (Chile), record copper andmolybdenum at Antamina and higher production at Tintaya (Peru), together withsavings from cost and volume related improvements projects, primarily atEscondida and Antamina, also had a favourable impact. These factors werepartially offset by increased input and price-linked costs and the unfavourableimpact of the stronger Australian dollar to US dollar exchange rate. Certain sales agreements of Base Metals provide for provisional pricing based onthe LME when shipped. Final settlement is based on the average applicable pricefor a specified future period. Base Metals record revenue upon transfer of titleusing the forward rate in place for the relevant specified future period. Theserevenues are adjusted to fair value through profit each period until the date ofthe final pricing, using the lower of the cash or forward curve price ratherthan period-end spot price used previously. This is considered to appropriatelymeasure the fair value of the applicable sales agreements at period end.Outstanding copper volumes, subject to this adjustment at 30 June 2005 amountedto 231,874 tonnes compared to 197,864 tonnes in the corresponding year. Thesewere revalued at a weighted average rate of US$1.54/lb compared to US$1.21/lb inthe previous year. Carbon Steel Materials EBIT was US$2,821 million, an increase of US$1,684 million or 148.1%, comparedwith the corresponding period. This increase was mainly attributable to strongercommodity prices for all products, record sales volumes from Western Australianiron ore, Queensland coal and manganese ore operations, modified supplyarrangements with Bluescope Steel Limited and larger volumes of CIF shipments. This was partially offset by the impact of Boodarie Iron not operating at allduring the year, and unit cost performance across all operations being impactedby the stronger Australian dollar and the South African rand relative to the USdollar. Increased price-linked royalty costs and inflationary pressures onAustralian and South African operations, compared with the corresponding year,were also unfavourable impacts. In addition, higher labour and contractor costs,increased stripping costs, principally at Queensland Coal operations due toexpansion projects, and higher fuel costs for all operations had an unfavourableimpact during the year. Depreciation charges also increased at WesternAustralian iron ore operations in respect of the Area C and Products andCapacity Expansion projects.Related Shares:
BHP Group