15th Feb 2006 07:00
BHP Billiton PLC15 February 2006 PART 2 Notes to the Interim Financial Statements 1 Acquired operations During the prior year ended 30 June 2005 the BHP Billiton Group obtained controlof WMC Resources Ltd (WMC). WMC was acquired on 3 June 2005 for a total cashconsideration of US$7,229 million made up of a price of A$7.85 per share plusacquisition related costs. Due to the complexity and timing of the acquisition, the fair values of theassets and liabilities acquired which were reported at 30 June 2005 wereprovisional and are subject to review during the year ending 30 June 2006. As at 31 December 2005, the provisional fair values have been updated to reflectthe latest information available. The review of the fair values of the assetsand liabilities acquired is still in progress, and these updated provisionalvalues remain subject to review during the six months to 30 June 2006. The following table details the adjustments to the fair values of the net assetsacquired which have been reflected in the six months to 31 December 2005: +---------------------+----+------------------------+-----------+---------------------------+| |Note| Provisional fair value |Adjustments| Updated provisional fair || | | at acquisition (f) | | values at acquisition |+---------------------+----+------------------------+-----------+---------------------------+| | | US$M | US$M | US$M |+---------------------+----+------------------------+-----------+---------------------------+|Cash and cash | | 396| -| 396||equivalents | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Trade and other | | 281| (1)| 280||receivables | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Inventories | a | 615| 2| 617|+---------------------+----+------------------------+-----------+---------------------------+|Property, plant and | b | 7 172| 71| 7 243||equipment | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Other assets | a | 108| 15| 123||(including | | | | ||intangibles) | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Trade and other | | (366)| 1| (365)||payables | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Interest bearing | | (737)| -| (737)||liabilities | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Provisions | c | (233)| (5)| (238)|+---------------------+----+------------------------+-----------+---------------------------+|Current and deferred | d | (4)| 151| 147||tax balances | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Other liabilities | e | (3)| (234)| (237)|+---------------------+----+------------------------+-----------+---------------------------+| | | | | |+---------------------+----+------------------------+-----------+---------------------------+|Net assets acquired | | 7 229| -| 7 229|+---------------------+----+------------------------+-----------+---------------------------+ a. Fair values of inventories and other assets acquired were updatedduring the six months to 31 December 2005. b. Valuations of property, plant and equipment were performed during thesix months to 31 December 2005 resulting in an increase to the value ofproperty, plant and equipment to reflect the finalisation of replacement costand estimated remaining useful lives, in particular in relation to the OlympicDam operations. The fair value of mineral assets have decreased to reflect theupdated estimates of the values of the assets and liabilities of the businessesacquired. In addition, there has been a transfer of mineral asset value from theNickel West operations to the Olympic Dam operations following the refinementand validation of the detailed valuation models. c. Provisions have increased following a review of the level ofprovisioning, in particular in relation to site restoration and environmentalrehabilitation provisions at the Olympic Dam operations, offset by decreasedprovisions relating to transaction related costs. d. Deferred tax assets have increased following the increase inprovisions and other liabilities, and a reduction in the estimated temporarydifference arising from the resetting of tax bases resulting from theacquisition. e. Other liabilities have increased for the fair value of fixed priceuranium sales contracts with contract prices below market prices at the date ofacquisition. For presentation purposes, these amounts are classified as deferredincome as the amount will be released to revenue as the contracts are fulfilled. f. These amounts differ to the amounts included in the IFRS balancesheet as presented in the note on the impact of adopting IFRS in the financialstatements for the year ended 30 June 2005. This follows resolution of thetreatment of deferred tax on mineral assets as referred to in note 15. 2 Business segments Business segments The BHP Billiton Group has grouped its major operating assets into the followingCustomer Sector Groups (CSGs): •Petroleum (exploration for and production, processing and marketing of hydrocarbons including oil, gas and LNG); •Aluminium (exploration for and mining of bauxite, processing and marketing of aluminium and alumina); •Base Metals (exploration for and mining, processing and marketing of copper, silver, zinc, lead, uranium and copper by-products including gold); •Carbon Steel Materials (exploration for and mining, processing and marketing of coking coal, iron ore and manganese); •Diamonds and Specialty Products (EKATI diamond mine and titanium operations); •Energy Coal (exploration for and mining, processing and marketing of steaming coal); and •Stainless Steel Materials (exploration for and mining, processing and marketing of nickel and, prior to divestment, chrome). Group and unallocated items represent Group centre functions, certaincomparative data for divested assets and investments, and exploration andtechnology activities. It is the Group's policy that inter-segment sales are made on a commercialbasis. Business segment information+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|US$ million | Petroleum| Aluminium| Base| Carbon| Diamonds|Energy| Stainless| Group and| BHP|| | | | | | | | | | || | | | Metals| Steel| and| Coal| Steel| unallocated|Billiton|| | | | | | | | | | || | | | | Materials|Specialty| | Materials| items/| Group|| | | | | | | | | | || | | | | | Products| | | eliminations| |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Half year | | | | | | | | | ||ended 31 | | | | | | | | | ||December 2005| | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Revenue | | | | | | | | | ||together with| | | | | | | | | ||share of | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||revenue from | | | | | | | | | ||external | | | | | | | | | ||customers | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of group| 2 371| 1 575| 3 549| 4 674| 679| 1 399| 1 346| 5| 15 598||production | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of third| 542| 769| 481| 34| -| 370| 12| 326| 2 534||party product| | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Rendering of | -| -| 1| 18| -| -| -| 21| 40||services | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Inter-segment| 47| -| -| 2| -| -| -| (49)| -||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | 2 960| 2 344| 4 031| 4 728| 679| 1 769| 1 358| 303| 18 172|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Less: share | (3)| (46)| (2 062)| (345)| (201)| (222)| -| (1)| (2 880)||of jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||external | | | | | | | | | ||revenue | | | | | | | | | ||included | | | | | | | | | ||above | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 2 957| 2 298| 1 969| 4 383| 478| 1 547| 1 358| 302| 15 292||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 1 431| 329| 490| 2 068| 190| 103| 374| (167)| 4 818||result | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Other | 5| -| -| 8| -| -| -| (13)| -||attributable | | | | | | | | | ||income (1) | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Share of | -| 56| 1 114| 160| 33| 77| -| 1| 1 441||profits from | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit from | 1 436| 385| 1 604| 2 236| 223| 180| 374| (179)| 6 259||operations | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Net finance | | | | | | | | | (215)||costs | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Taxation | | | | | | | | | (1 389)|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Royalty | | | | | | | | | (227)||related | | | | | | | | | ||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit after | | | | | | | | | 4 428||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+ (1) Other attributable income represents the re-allocation of certain itemsrecorded in the segment result of group & unallocated items / eliminations tothe applicable CSG / business segment. 2 Business segments (continued) Business segment information+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|US$ million | Petroleum| Aluminium| Base| Carbon| Diamonds|Energy| Stainless| Group and| BHP|| | | | | | | | | | || | | | Metals| Steel| and| Coal| Steel| unallocated|Billiton|| | | | | | | | | | || | | | | Materials|Specialty| | Materials| items/| Group|| | | | | | | | | | || | | | | | Products| | | eliminations| |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Half year | | | | | | | | | ||ended 31 | | | | | | | | | ||December 2004| | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Revenue | | | | | | | | | ||together with| | | | | | | | | ||share of | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||revenue from | | | | | | | | | ||external | | | | | | | | | ||customers | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of group| 1 924| 1 590| 1 978| 3 109| 591| 1 296| 1 011| 10| 11 509||production | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of third| 1 224| 728| 363| 90| 523| 344| 2| 396| 3 670||party product| | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Rendering of | -| -| -| 17| -| -| -| 11| 28||services | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Inter-segment| 23| -| -| 8| -| -| -| (31)| -||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | 3 171| 2 318| 2 341| 3 224| 1 114| 1 640| 1 013| 386| 15 207|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Less: share | -| (39)| (1 325)| (191)| (644)| (196)| (7)| (8)| (2 410)||of jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||external | | | | | | | | | ||revenue | | | | | | | | | ||included | | | | | | | | | ||above | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 3 171| 2 279| 1 016| 3 033| 470| 1 444| 1 006| 378| 12 797||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 1 260| 359| 209| 919| 335| 196| 337| (108)| 3 507||result | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Other | 5| 5| -| -| -| 2| -| (12)| -||attributable | | | | | | | | | ||income (1) | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Share of | -| 67| 636| 61| 22| 75| -| 1| 862||profits from | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit from | 1 265| 431| 845| 980| 357| 273| 337| (119)| 4 369||operations | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Net finance | | | | | | | | | (192)||costs | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Taxation | | | | | | | | | (847)|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Royalty | | | | | | | | | (266)||related | | | | | | | | | ||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit after | | | | | | | | | 3 064||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+ (1) Other attributable income represents the re-allocation of certain itemsrecorded in the segment result of group & unallocated items / eliminations tothe applicable CSG / business segment. Business segment information+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|US$ million | Petroleum| Aluminium| Base| Carbon| Diamonds|Energy| Stainless| Group and| BHP|| | | | | | | | | | || | | | Metals| Steel| and| Coal| Steel| unallocated|Billiton|| | | | | | | | | | || | | | | Materials|Specialty| | Materials| items/| Group|| | | | | | | | | | || | | | | | Products| | | eliminations| |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Year ended 30| | | | | | | | | ||June 2005 | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Revenue | | | | | | | | | ||together with| | | | | | | | | ||share of | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||revenue from | | | | | | | | | ||external | | | | | | | | | ||customers | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of group| 3 953| 3 380| 4 372| 7 298| 986| 2 718| 2 265| 4| 24 976||production | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Sale of third| 1 955| 1 266| 670| 238| 523| 669| 9| 783| 6 113||party product| | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Rendering of | -| -| 1| 34| -| -| -| 26| 61||services | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Inter-segment| 62| 5| -| 27| -| -| -| (94)| -||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | 5 970| 4 651| 5 043| 7 597| 1 509| 3 387| 2 274| 719| 31 150|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Less: share | (3)| (80)| (2 714)| (429)| (778)| (416)| (8)| -| (4 428)||of jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | ||external | | | | | | | | | ||revenue | | | | | | | | | ||included | | | | | | | | | ||above | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 5 967| 4 571| 2 329| 7 168| 731| 2 971| 2 266| 719| 26 722||revenue | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+| | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Segment | 2 523| 758| 481| 2 330| 429| 319| 828| (184)| 7 484||result | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Other | 6| 26| -| 2| 19| 1| 25| (79)| -||attributable | | | | | | | | | ||income (1) | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Share of | -| 139| 1 285| 148| 77| 137| 1| -| 1 787||profits from | | | | | | | | | ||jointly | | | | | | | | | ||controlled | | | | | | | | | ||entities' | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit from | 2 529| 923| 1 766| 2 480| 525| 457| 854| (263)| 9 271||operations | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Net finance | | | | | | | | | (331)||costs | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Taxation | | | | | | | | | (1 876)|+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Royalty | | | | | | | | | (436)||related | | | | | | | | | ||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+|Profit after | | | | | | | | | 6 628||taxation | | | | | | | | | |+-------------+----------+----------+--------+----------+---------+------+----------+-------------+--------+ (1) Other attributable income represents the re-allocation of certain itemsrecorded in the segment result of group & unallocated items / eliminations tothe applicable CSG / business segment. 3 Significant items Individually significant items are those items where their nature and amount isconsidered material and require separate disclosure. Such items included withinthe BHP Billiton Group profit for the period are detailed below. Half year ended 31 December 2005 There were no significant items for half year ended 31 December 2005. Half year ended 31 December 2004 There were no significant items for half year ended 31 December 2004. Year ended 30 June 2005+---------------------------------------------------------------------+---------+-----------+------------+| | Gross| Tax| Net|| | | | || | US$M| US$M| US$M|+---------------------------------------------------------------------+---------+-----------+------------+|Significant items by category | | | |+---------------------------------------------------------------------+---------+-----------+------------+|Sale of Laminaria and Corallina | 134| (10)| 124|+---------------------------------------------------------------------+---------+-----------+------------+|Disposal of Chrome operations | 142| (6)| 136|+---------------------------------------------------------------------+---------+-----------+------------+|Termination of operations | (266)| 80| (186)|+---------------------------------------------------------------------+---------+-----------+------------+|Closure plans | (121)| 17| (104)|+---------------------------------------------------------------------+---------+-----------+------------+|Total by category | (111)| 81| (30)|+---------------------------------------------------------------------+---------+-----------+------------+|Significant items by Customer Sector Group | | | |+---------------------------------------------------------------------+---------+-----------+------------+|Petroleum | 134| (10)| 124|+---------------------------------------------------------------------+---------+-----------+------------+|Base Metals | (29)| (4)| (33)|+---------------------------------------------------------------------+---------+-----------+------------+|Energy Coal | (73)| 21| (52)|+---------------------------------------------------------------------+---------+-----------+------------+|Stainless Steel Materials | 142| (6)| 136|+---------------------------------------------------------------------+---------+-----------+------------+|Carbon Steel Materials | (285)| 80| (205)|+---------------------------------------------------------------------+---------+-----------+------------+|Total by Customer Sector Group | (111)| 81| (30)|+---------------------------------------------------------------------+---------+-----------+------------+ Sale of Laminaria and Corallina In January 2005, the Group disposed of its interest in the Laminaria andCorallina oil fields to Paladin Resources plc. Proceeds on the sale were US$130million resulting in a profit before tax of US$134 million (US$10 million taxexpense). Disposal of Chrome operations Effective 1 June 2005, BHP Billiton disposed of its economic interest in themajority of its South African chrome business to the Kermas Group. The totalproceeds on the sale were US$421 million, resulting in a profit of US$127million (US$1 million tax expense). In addition, the Group sold its interest inthe Palmiet chrome business to Mogale Alloys in May 2005 for proceeds of US$12million, resulting in a profit of US$15 million (US$5 million tax expense). Provision for termination of operations The Group decided to decommission the Boodarie Iron (Australia) operations and acharge of US$266 million (US$80 million tax benefit) relating to termination ofthe operation was recognised. The charge primarily relates to settlement ofexisting contractual arrangements, plant decommissioning, site rehabilitation,redundancy and other closure related costs/charges associated with the closure. Closure plans 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 of US$121 million (US$104 million after tax) was recorded andincluded a charge of US$73 million (US$21 million tax benefit) for closed minesat Ingwe (South Africa) in relation to revision of the Group's assessedrehabilitation obligation, predominantly resulting from revised water managementplans; and a charge of US$48 million (US$4 million tax expense) in relation toother closed mining operations. 4 Investments accounted for using the equity method+---------------------------------+--------------------------------+--------------------------------+|Material shareholdings in jointly| Ownership interest at BHP | Contribution to profit after ||controlled entities | Billiton Group reporting date | taxation || | (a) | |+---------------------------------+----------+----------+----------+----------+----------+----------+| | 31| 31| 30 June| 31| 31| 30 June|| | December| December| 2005| December| December| 2005|| | 2005| 2004| | 2005| 2004| || | %| %| %| US$M| US$M| US$M|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Samarco Mineracao SA | | 50| 50| 50| 163| 59| 148|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Minera Antamina SA | | 33.75| 33.75| 33.75| 170| 84| 194|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Carbones del Cerrejon | | 33.3| 33.3| 33.3| 77| 76| 138||LLC | | | | | | | |+----------------------+----------+----------+----------+----------+----------+----------+----------+|Integris Metals Inc | | -| 50| -| -| 17| 17||(b) | | | | | | | |+----------------------+----------+----------+----------+----------+----------+----------+----------+|Escondida | | 57.5| 57.5| 57.5| 944| 552| 1 090|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Mozal | | 47.1| 47.1| 47.1| 60| 62| 130|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Valesul Aluminio | | 45.5| 45.5| 45.5| (4)| 5| 9|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Other (c) | | | | | 31| 7| 61|+----------------------+----------+----------+----------+----------+----------+----------+----------+|Total | | | | | 1 441| 862| 1 787|+----------------------+----------+----------+----------+----------+----------+----------+----------+ (a) Ownership interest reflects the interest held at the end of the reportingperiods. The proportion of voting power held corresponds to ownership interest. (b) Subsequent to 31 December 2004, the BHP Billiton Group sold its interest inIntegris Metals Inc. (c) Includes immaterial jointly controlled entities and the Richards BayMinerals joint venture owned 50% (31 December 2004: 50%; 30 June 2005: 50%). 5 Net finance costs+----------------------------------------------------+-----------------+-----------------+-------------+| | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+| | US$M| US$M| US$M|+----------------------------------------------------+-----------------+-----------------+-------------+|Financial expenses: | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Interest on bank loans and overdrafts | 71| 13| 34|+----------------------------------------------------+-----------------+-----------------+-------------+|Interest on all other loans | 133| 111| 254|+----------------------------------------------------+-----------------+-----------------+-------------+|Finance lease and hire purchase interest | 3| 2| 6|+----------------------------------------------------+-----------------+-----------------+-------------+| | 207| 126| 294|+----------------------------------------------------+-----------------+-----------------+-------------+|Dividends on redeemable preference shares | 13| 12| 25|+----------------------------------------------------+-----------------+-----------------+-------------+|Discounting on provisions and other liabilities | 107| 78| 173|+----------------------------------------------------+-----------------+-----------------+-------------+|Discounting on pension and medical benefit | 40| 56| 114||entitlements | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Interest capitalised (a) | (57)| (42)| (78)|+----------------------------------------------------+-----------------+-----------------+-------------+| | 310| 230| 528|+----------------------------------------------------+-----------------+-----------------+-------------+|Exchange differences on net debt (b) | (2)| 58| 19|+----------------------------------------------------+-----------------+-----------------+-------------+| | 308| 288| 547|+----------------------------------------------------+-----------------+-----------------+-------------+|Financial income: | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Interest income | (53)| (48)| (118)|+----------------------------------------------------+-----------------+-----------------+-------------+|Return on pension plan assets | (40)| (48)| (98)|+----------------------------------------------------+-----------------+-----------------+-------------+| | (93)| (96)| (216)|+----------------------------------------------------+-----------------+-----------------+-------------+|Net finance costs | 215| 192| 331|+----------------------------------------------------+-----------------+-----------------+-------------+ (a) Interest has been capitalised at the rate of interest applicable to thespecific borrowings financing the assets under construction or, where financedthrough general borrowings, at a capitalisation rate representing the averageinterest rate on such borrowings. For the half year ended 31 December 2005 thecapitalisation rate was 4.6 per cent (31 December 2004: 4.25 per cent; 30 June2005: 4.6 per cent). (b) Exchange differences on net debt primarily represent the effect onborrowings of movements in the South African rand against the US dollar. 6 Taxation+----------------------------------------------------+-----------------+-----------------+-------------+|Taxation expense including royalty related taxation | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+| | US$M| US$M| US$M|+----------------------------------------------------+-----------------+-----------------+-------------+|UK taxation expense | 131| 57| 206|+----------------------------------------------------+-----------------+-----------------+-------------+|Australian taxation expense | 1 180| 808| 1 613|+----------------------------------------------------+-----------------+-----------------+-------------+|Overseas taxation expense | 305| 248| 493|+----------------------------------------------------+-----------------+-----------------+-------------+|Taxation expense | 1 616| 1 113| 2 312|+----------------------------------------------------+-----------------+-----------------+-------------+ 7 Earnings per share+----------------------------------------------------+-----------------+-----------------+-------------+| | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+|Basic earnings per share (US cents) | 72.1| 47.7| 104.4|+----------------------------------------------------+-----------------+-----------------+-------------+|Diluted earnings per share (US cents) | 71.9| 47.5| 103.9|+----------------------------------------------------+-----------------+-----------------+-------------+|Basic earnings per American Depositary Share (ADS) | 144.2| 95.4| 208.8||(US cents) (a) | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Diluted earnings per American Depositary Share (ADS)| 143.8| 95.0| 207.8||(US cents) (a) | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Basic earnings (US$ million) | 4 364| 2 953| 6 396|+----------------------------------------------------+-----------------+-----------------+-------------+|Diluted earnings (US$ million) (b) | 4 370| 2 956| 6 399|+----------------------------------------------------+-----------------+-----------------+-------------+ The weighted average number of shares used for the purposes of calculatingdiluted earnings per share reconciles to the number used to calculate basicearnings per share as follows: +----------------------------------------------------+-----------------+-----------------+-------------+| | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+|Weighted average number of shares | Million| Million| Million|+----------------------------------------------------+-----------------+-----------------+-------------+|Basic earnings per share denominator | 6 055| 6 195| 6 124|+----------------------------------------------------+-----------------+-----------------+-------------+|Shares and options contingently issuable under | 26| 29| 34||employee share ownership plans | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Diluted earnings per share denominator | 6 081| 6 224| 6 158|+----------------------------------------------------+-----------------+-----------------+-------------+ (a) For the periods indicated, each ADS represents two ordinary shares. (b) Diluted earnings are calculated after adding back dividend equivalentpayments of US$6 million (31 December 2004: US$3 million; 30 June 2005: US$3million) that would not be made if potential ordinary shares were converted tofully paid 8 Dividends+----------------------------------------------------+-----------------+-----------------+-------------+| | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+| | US$M| US$M| US$M|+----------------------------------------------------+-----------------+-----------------+-------------+|Dividends paid (a) | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|BHP Billiton Limited (b) | 520| 358| 842|+----------------------------------------------------+-----------------+-----------------+-------------+|BHP Billiton Plc - Ordinary shares | 358| 234| 567|+----------------------------------------------------+-----------------+-----------------+-------------+| - Preference shares (c)| -| -| -|+----------------------------------------------------+-----------------+-----------------+-------------+| | 878| 592| 1 409|+----------------------------------------------------+-----------------+-----------------+-------------+| | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Dividends declared in the announcement of the | | | ||results for the period (d) | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|BHP Billiton Limited | 628| 484| 1,004|+----------------------------------------------------+-----------------+-----------------+-------------+|BHP Billiton Plc - Ordinary shares | 432| 333| 691|+----------------------------------------------------+-----------------+-----------------+-------------+| - Preference shares (c)| -| -| -|+----------------------------------------------------+-----------------+-----------------+-------------+| | 1 060| 817| 1 695|+----------------------------------------------------+-----------------+-----------------+-------------+|Total dividends paid or payable | 1 938| 1 409| 3 104|+----------------------------------------------------+-----------------+-----------------+-------------+ +----------------------------------------------------+-----------------+-----------------+-------------+| | 31 December 2005| 31 December 2004| 30 June 2005|+----------------------------------------------------+-----------------+-----------------+-------------+| | US cents| US cents| US cents|+----------------------------------------------------+-----------------+-----------------+-------------+|Dividends declared in the announcement of the | | | ||results for the period (per share) | | | |+----------------------------------------------------+-----------------+-----------------+-------------+|Interim dividend (a) (b) | 17.5| 13.5| 13.5|+----------------------------------------------------+-----------------+-----------------+-------------+|Final dividend (a) | N/A| N/A| 14.5|+----------------------------------------------------+-----------------+-----------------+-------------+| | 17.5| 13.5| 28.0|+----------------------------------------------------+-----------------+-----------------+-------------+ Dividends are declared after period end in the announcement of the results forthe period. Interim dividends are declared in February and paid in March. Finaldividends are declared in August and paid in September. Dividends declared arenot recorded as a liability at the end of the period to which they relate. Dividends are stated net of amounts which are not payable outside the BHPBilliton Group under the terms of the share repurchase scheme and ESOP trusts. (a) Each American Depository Share (ADS) represents two ordinary shares of BHPBilliton Limited or BHP Billiton Plc. Dividends declared on each ADS representtwice the dividend declared on BHP Billiton shares. (b) BHP Billiton Limited dividends for all periods presented are fully frankedbased on a tax rate of 30%. (c) 5.5 per cent dividend on 50,000 preference shares of £1 each (2004: 5.5 percent). (d) Subsequent to half year end, on 15 February 2006, BHP Billiton declared aninterim dividend of 17.5 US cents per share (US$1,060 million) which will bepaid on 22 March 2006. BHP Billiton Limited dividends will be fully franked. 9 Assets classified as held for sale BHP Billiton's 45.5% joint venture interest in Valesul Aluminio SA, an aluminiumsmelter located in Brazil, forming part of the Aluminium CSG, is presented asheld for sale following the completion of a divestment review by the Group. Asale is expected to be completed in the second half of financial year 2006. At 31 December 2005, the carrying value of the Group's equity accounted share ofValesul is US$46 million. 10 Interest bearing liabilities On 6 December 2005, the Group issued a two tranche Global Bond under its debtshelf registration statement. The Global Bond comprised US$600 million of 5.00%Senior Notes due 2010 and US$750 million of 5.25% Senior Notes due 2015. Theproceeds were used to repay existing debt. 11 Total equity+--------------------------------------------------------------------+-----------------+-----------------+-------------+| | Half year ended| Half year ended| Year ended|| | | | || | 31 December 2005| 31 December 2004| 30 June 2005|+--------------------------------------------------------------------+-----------------+-----------------+-------------+| | US$M| US$M| US$M|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Total equity opening balance | 17 916| 14 743| 14 743|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Adjustment for adoption of IAS 39 / AASB 139 - Retained earnings | 55| -| -|+--------------------------------------------------------------------+-----------------+-----------------+-------------+| | | | ||- Hedging reserve | 30| -| -|| | | | |+--------------------------------------------------------------------+-----------------+-----------------+-------------+| | | | ||- Financial asset reserve | 116| -| -|| | | | |+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Opening balance as restated | 18 117| 14 743| 14 743|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Total changes in the Statement of Recognised Income and Expense | 4 336| 2 946| 6 306|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Transactions with owners - contributed equity | 17| 33| 56|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Dividends | (878)| (592)| (1 409)|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Accrued employee entitlement to share awards | 34| 25| 53|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Purchases of shares made by ESOP trusts | (145)| (29)| (47)|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Cash settlement of employee share awards | -| (6)| (3)|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|BHP Billiton share buy back | -| (1 777)| (1 777)|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Total changes in minority interests | (49)| 80| (6)|+--------------------------------------------------------------------+-----------------+-----------------+-------------+|Total equity closing balance | 21 432| 15 423| 17 916|+--------------------------------------------------------------------+-----------------+-----------------+-------------+ The adoption of IAS 39 / AASB 139 resulted in a US$201 million increase inequity attributable to BHP Billiton shareholders at 1 July 2005. This was net ofconsequential increases in deferred tax liabilities of US$37 million. This represents the net gain on marking to market of qualifying hedges, embeddedderivatives, available for sale investments and certain derivatives that do notqualify as hedges, which were not recognised prior to 1 July 2005. The majorbalance sheet items affected were financial assets: increase of US$1,279million, financial liabilities: increase of US$634 million, and borrowings:increase of US$411 million. The net impact on other balance sheet items was adebit of US$3 million. The current period impact was an increase in attributable profit of US$40million, of which US$16 million was included in financial expenses. 12 Contingent liabilities+---------------------------------------------------------------------+-----------------+-------------+| | 31 December 2005| 30 June 2005|+---------------------------------------------------------------------+-----------------+-------------+| | US$M| US$M|+---------------------------------------------------------------------+-----------------+-------------+|Contingent liabilities at balance date, not otherwise provided for in| | ||the financial report, are categorised as arising from: | | |+---------------------------------------------------------------------+-----------------+-------------+|Jointly controlled entities | | |+---------------------------------------------------------------------+-----------------+-------------+|Other (a) | 153| 136|+---------------------------------------------------------------------+-----------------+-------------+| | 153| 136|+---------------------------------------------------------------------+-----------------+-------------+|Subsidiaries and jointly controlled assets (including guarantees) | | |+---------------------------------------------------------------------+-----------------+-------------+|Performance guarantees (b) | 1| 1|+---------------------------------------------------------------------+-----------------+-------------+|Other (a) | 209| 123|+---------------------------------------------------------------------+-----------------+-------------+| | 210| 124|+---------------------------------------------------------------------+-----------------+-------------+|Total contingent liabilities | 363| 260|+---------------------------------------------------------------------+-----------------+-------------+ (a) Other contingent liabilities relate predominantly to actual or potentiallitigation of the Group for which amounts are reasonably estimable but theliability is not probable and therefore the Group has not provided for suchamounts in these financial statements. The amounts relate to a number of actionsagainst the Group, none of which are individually significant. Additionally,there are a number of legal claims or potential claims against the Group, theoutcome of which cannot be foreseen at present, and for which no amounts havebeen included in the table above. (b) The BHP Billiton Group has entered into various counter-indemnities ofperformance guarantees related to its own future performance in the normalcourse of business. 13 Commitments+---------------------------------------------------------------------+-----------------+-------------+| | 31 December 2005| 30 June 2005|+---------------------------------------------------------------------+-----------------+-------------+| | US$M| US$M|+---------------------------------------------------------------------+-----------------+-------------+|Capital expenditure commitments not provided for in the financial | | ||statements | | |+---------------------------------------------------------------------+-----------------+-------------+|Due not later than one year | 2 566| 2 308|+---------------------------------------------------------------------+-----------------+-------------+|Due later than one year and not later than five years | 482| 110|+---------------------------------------------------------------------+-----------------+-------------+|Total capital expenditure commitments | 3 048| 2 418|+---------------------------------------------------------------------+-----------------+-------------+ 14 Subsequent events No matters or circumstances have arisen since the end of the half year that havesignificantly affected, or may significantly affect, the operations, results ofoperations or state of affairs of the BHP Billiton Group in subsequentaccounting periods. 15 IFRS transition As stated in note 17 Accounting Policies, this is the BHP Billiton Group's firstconsolidated financial report prepared in accordance with IFRS. The accounting policies set out in this financial report have been applied forthe half year ended 31 December 2005, the half year ended 31 December 2004, theyear ended 30 June 2005, and in the preparation of an opening IFRS balance sheetat 30 June 2004. In preparing its opening IFRS balance sheet, the BHP Billiton Group has adjustedamounts reported previously in financial reports prepared in accordance with itsprevious basis of accounting (previous GAAP). An explanation of how thetransition from previous UK and Australian GAAP to IFRS has affected the Group'sfinancial position and financial performance is set out in the following tablesand accompanying notes. The amounts presented below differ to the amounts presented in the note on theimpact of adopting IFRS in the financial statements for the year ended 30 June2005. This follows resolution of the treatment of two items identified in thatnote as being subject to interpretation, and so revision. The amounts in thetables below are presented based on the application of the revisedinterpretation from the date of transition to IFRS: •Royalties and resource rent taxes which are in the nature of an income tax are now measured and presented as income tax in accordance with IAS 12 / AASB 112 deferred tax principles. At 30 June 2005 these were accounted for as operating costs; and •Deferred tax liabilities are no longer recorded on non-tax depreciable assets, such as mineral rights, where a tax base exists for capital gains tax, and that tax base exceeds the book base. At 30 June 2005 a deferred tax liability was recorded by reference to the tax base for income tax purposes. 15 IFRS transition continued The following table presents a summary of the impact of IFRS on net equity as at30 June 2005, 31 December 2004 and 1 July 2004. Reconciliation of net equity - UK GAAP+-------------------------------------------------------------+-------------+-----------------+------------+| Note| As at| As at| As at|| +-------------+-----------------+------------+| | 30 June 2005| 31 December 2004| 1 July 2004|| +-------------+-----------------+------------+| | US$M| US$M| US$M|+----------------------------------------------------------+--+-------------+-----------------+------------+|Net equity as previously reported under UK GAAP | | 17 489| 14 768| 14 380|+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement pension obligations - | a| (650)| (627)| (527)||pre tax | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement pension obligations - | a| 158| 164| 135||deferred tax effect | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement medical benefits - pre | a| (111)| (101)| (76)||tax | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement medical benefits - | a| 30| 28| 21||deferred tax effect | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 12 / AASB 112 Deferred income tax accounting | b| (226)| (73)| (202)|+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 12 / AASB 112 Remeasurement of royalties as income | b| 32| 48| 30||taxes | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IFRS 3 / AASB 3 Reinstatement of goodwill | c| 354| 389| 388|+----------------------------------------------------------+--+-------------+-----------------+------------+|IAS 10 / AASB 110 Reversal of dividend payable | d| 878| 817| 592|+----------------------------------------------------------+--+-------------+-----------------+------------+|IFRS 2 / AASB 2 Equity based compensation payments to | e| 16| 10| 2||employees - tax effect | | | | |+----------------------------------------------------------+--+-------------+-----------------+------------+|IFRS 3 / AASB 3 Business combinations - WMC acquisition | c| (54)| -| -|+----------------------------------------------------------+--+-------------+-----------------+------------+|Net equity in accordance with IFRS | | 17 916| 15 423| 14 743|+----------------------------------------------------------+--+-------------+-----------------+------------+|Overall net increase in equity under IFRS | | 427| 655| 363|+----------------------------------------------------------+--+-------------+-----------------+------------+ Reconciliation of net equity - Australian GAAP+-------------------------------------------------------+-----+-------------+-----------------+------------+| | Note| As at| As at| As at|+-------------------------------------------------------+-----+-------------+-----------------+------------+| | | 30 June 2005| 31 December 2004| 1 July 2004|+-------------------------------------------------------+-----+-------------+-----------------+------------+| | | US$M| US$M| US$M|+-------------------------------------------------------+-----+-------------+-----------------+------------+|Net equity as previously reported under Australian GAAP| | 18 364| 15 862| 15 425|+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement pension obligations -| a| (650)| (627)| (527)||pre tax | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement pension obligations -| a| 158| 164| 135||deferred tax effect | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement medical benefits - | a| (111)| (101)| (76)||pre tax | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 19 / AASB 119 Post-retirement medical benefits - | a| 30| 28| 21||deferred tax effect | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 12 / AASB 112 Deferred income tax accounting | b| 36| 17| (267)|+-------------------------------------------------------+-----+-------------+-----------------+------------+|IAS 12 / AASB 112 Remeasurement of royalties as income | b| 32| 48| 30||taxes | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IFRS 3 / AASB 3 Reinstatement of goodwill | c| 41| 22| -|+-------------------------------------------------------+-----+-------------+-----------------+------------+|IFRS 2 / AASB 2 Equity based compensation payments to | e| 16| 10| 2||employees - tax effect | | | | |+-------------------------------------------------------+-----+-------------+-----------------+------------+|IFRS 3 / AASB 3 Business combinations - WMC acquisition| c| -| -| -|+-------------------------------------------------------+-----+-------------+-----------------+------------+|Net equity in accordance with IFRS | | 17 916| 15 423| 14 743|+-------------------------------------------------------+-----+-------------+-----------------+------------+|Overall net increase / (decrease) in equity under IFRS | | (448)| (439)| (682)|+-------------------------------------------------------+-----+-------------+-----------------+------------+ The following table presents a summary of the impact of IFRS on investments injointly controlled entities as at 30 June 2005, 31 December 2004 and 1 July2004. Reconciliation of investments in jointly controlled entities - UK and AustralianGAAP+---------------------------------------------------------------+-------------+-----------------+------------+| Note| As at| As at| As at|| +-------------+-----------------+------------+| | 30 June 2005| 31 December 2004| 1 July 2004|| +-------------+-----------------+------------+| | US$M| US$M| US$M|+---------------------------------------------------------------+-------------+-----------------+------------+|Investments in jointly controlled entities as previously | 1 525| 1 501| 1 369||reported under UK and Australian GAAP | | | |+------------------------------------------------------------+--+-------------+-----------------+------------+|Impact on investments in jointly controlled entities of | | | | ||adjustments to reclassify assets and liabilities previously | | | | ||accounted for by proportional consolidation: | | | | |+------------------------------------------------------------+--+-------------+-----------------+------------+|Current assets | | 623| 697| 507|+------------------------------------------------------------+--+-------------+-----------------+------------+|Non-current assets | | 2 687| 2 518| 2 425|+------------------------------------------------------------+--+-------------+-----------------+------------+|Current liabilities | | (374)| (515)| (505)|+------------------------------------------------------------+--+-------------+-----------------+------------+|Non-current liabilities | | (1 184)| (1 146)| (1 196)|+---------------------------------------------------------+--+--+-------------+-----------------+------------+|Increase in investments in jointly controlled entities in| f| 1 752| 1 554| 1 231||applying the equity method of accounting | | | | |+---------------------------------------------------------+--+--+-------------+-----------------+------------+|Other IFRS adjustments | | (13)| (10)| (7)|+------------------------------------------------------------+--+-------------+-----------------+------------+|Investments in jointly controlled entities in accordance | | 3 264| 3 045| 2 593||with IFRS | | | | |+---------------------------------------------------------+--+--+-------------+-----------------+------------++---------------------------------------------------------+--+--+-------------+-----------------+------------+ 15 IFRS transition continued The following tables present a summary of the impact of IFRS on profit after taxfor the year ended 30 June 2005 and 31 December 2004. Reconciliation of profit after tax - UK GAAP+-------------------------------------------------------------------+-----+-----------------+-------------+| | Note| Half year ended| Year ended|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | 31 December 2004| 30 June 2005|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | US$M| US$M|+-------------------------------------------------------------------+-----+-----------------+-------------+|Net Profit after tax as previously reported under UK GAAP | | 2 924| 6 630|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|Pre Tax IFRS adjustments: | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 19 / AASB 119 Post-retirement medical and pension obligations | a| (56)| (8)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Deferred tax effects within jointly controlled | b| (3)| (6)||entities | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 3 / AASB 3 Reversal of amortisation of goodwill | c| 1| 2|+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 2 / AASB 2 Equity based compensation payments to employees | e| 22| 56|+-------------------------------------------------------------------+-----+-----------------+-------------+|Adjustment to goodwill included in the net book value of the | c| -| 31||disposed Chrome operations | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 3 / AASB 3 Business combinations - WMC acquisition | c| -| (54)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | (102)| (197)||expense to profit before tax - previously equity accounted | f| | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | (115)| (230)||expense to profit before tax - previously proportionately | f| | ||consolidated | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Deferred tax on the disposed Chrome operations | b| -| 3|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Reclassification of royalties which are accounted| g| 375| 603||for as income taxes | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|Other | | -| (1)|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|Tax IFRS adjustments: | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Withholding and repatriation taxes | b| (2)| (10)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Additional foreign exchange variations | b| 109| (40)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Non-tax depreciable items now tax-effected | b| 18| 31|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Tax base resets under Australian tax | b| 14| 17||consolidations | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 2 / AASB 2 Equity based compensation payments to employees | e| (5)| (12)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | 102| 197||expense to profit before tax - previously equity accounted | f| | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | 115| 230||expense to profit before tax - previously proportionately | f| | ||consolidated | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 19 / AASB 119 Post-retirement medical and pension benefits - | a| 17| 3||tax impact | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Reclassification of royalties which are accounted| g| (375)| (603)||for as income taxes | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Remeasurement of royalties as income taxes | g| 18| 2|+-------------------------------------------------------------------+-----+-----------------+-------------+|Other | | 7| (16)|+-------------------------------------------------------------------+-----+-----------------+-------------+|Net profit after tax in accordance with IFRS | | 3 064| 6 628|+-------------------------------------------------------------------+-----+-----------------+-------------+ Reconciliation of profit after tax - Australian GAAP+-------------------------------------------------------------------+-----+-----------------+-------------+| | Note| Half year ended| Year ended|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | 31 December 2004| 30 June 2005|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | US$M| US$M|+-------------------------------------------------------------------+-----+-----------------+-------------+|Net Profit after tax as previously reported under Australian GAAP | | 2 748| 6 241|+-------------------------------------------------------------------+-----+-----------------+-------------+| | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|Pre Tax IFRS adjustments: | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 19 / AASB 119 Post-retirement medical and pension obligations | a| (56)| (8)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Deferred tax effects within jointly controlled | b| (3)| (6)||entities | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 3 / AASB 3 Reversal of amortization of goodwill | c| 22| 44|+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 2 / AASB 2 Equity based compensation payments to employees | e| 22| 56|+-------------------------------------------------------------------+-----+-----------------+-------------+|Adjustment to goodwill included in the net book value of the | c| -| (3)||disposed Chrome operations | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 3 / AASB 3 Business combinations - WMC acquisition | c| -| -|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | (115)| (230)||expense to profit before tax - previously proportionately | f| | ||consolidated | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Deferred tax on the disposed Chrome operations | b| -| 3|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Reclassification of royalties which are accounted| g| 375| 603||for as income taxes | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+| | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|Tax IFRS adjustments: | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Recognition of prior year tax losses | b| 175| 350|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Withholding and repatriation taxes | b| (2)| (10)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Additional foreign exchange variations | b| 103| (46)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Non-tax depreciable items now tax-effected | b| 18| 31|+-------------------------------------------------------------------+-----+-----------------+-------------+|IFRS 2 / AASB 2 Equity based compensation payments to employees | e| (5)| (12)|+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 31 / AASB 131 Reclassification of jointly controlled entity tax| | 115| 230||expense to profit before tax - previously proportionately | f| | ||consolidated | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 19 / AASB 119 Post-retirement medical and pension benefits - | a| 17| 3||tax impact | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Reclassification of royalties which are accounted| g| (375)| (603)||for as income taxes | | | |+-------------------------------------------------------------------+-----+-----------------+-------------+|IAS 12 / AASB 112 Remeasurement of royalties as income taxes | g| 18| 2|+-------------------------------------------------------------------+-----+-----------------+-------------+|Other | | 7| (17)|+-------------------------------------------------------------------+-----+-----------------+-------------+|Net profit after tax in accordance with IFRS | | 3 064| 6 628|+-------------------------------------------------------------------+-----+-----------------+-------------+ 15 IFRS transition continued a Post-retirement and medical benefits (IAS 19 / AASB 119 Employee Benefits)Under IFRS, defined benefit pension plan and medical benefit plan arrangementsresult in the recognition of net assets or liabilities directly based on theunderlying obligations and assets of those plans. The recognised net asset orliability is subject to changes in value that are more volatile than changes inassets and liabilities that were recognised under BHP Billiton Group's previouspolicy, which was based on the UK Statement of Accounting Practice (SSAP) 24'Accounting for Pension Costs'. Under SSAP 24, the cost of providing pensionswas charged to profit and loss so as to allocate the cost systematically overthe employees' service lives on the basis of independent actuarial advice. Apension liability or asset was consequently recognised in the balance sheet tothe extent that the contributions payable either lagged or preceded expenserecognition. b Deferred Tax (IAS 12 / AASB 112 Income Taxes)On transition to IFRS, the balance sheet liability method of tax effectaccounting was adopted, rather than the income statement liability methodapplied under previous BHP Billiton Group policy. This balance sheet methodrecognises deferred tax assets and liabilities on temporary differences betweenthe accounting and tax values of balance sheet items, rather than accounting andtax values of items recognised in profit and loss. This approach gives rise to awider range of deferred tax assets and liabilities and an increase in thevolatility of deferred tax balances brought about by foreign exchange ratemovements. IFRS requires deferred tax to be recognised on items which do nothave a tax base, such as certain mineral rights and fair value adjustments onacquisitions, and for tax on unremitted earnings from subsidiaries and jointventures except to the extent that the group can control the timing ofdistributions and those distributions are not probable in the foreseeablefuture. In addition, royalty arrangements which are in the nature of income taxhave been measured and presented as income tax in accordance with IAS 12 / AASB112 deferred tax accounting principles. The impact on deferred tax balances ofadopting IAS 12 / AASB 112, other than the tax effect of other IFRS adjustments,is as follows: +----------------------------+-----------+-----------+-----------+| | 30 June |31 Dec 2004|1 Jul 2004 || | 2005 | | |+----------------------------+-----------+-----------+-----------+|UK GAAP to IFRS |Tax asset /|Tax asset /|Tax asset /|| |(provision)|(provision)|(provision)|| | | | || | US$M | US$M | US$M |+----------------------------+-----------+-----------+-----------+|Deferred tax on non | (309) | (316) | (321) ||depreciable assets acquired | | | ||in business combinations | | | |+----------------------------+-----------+-----------+-----------+|Tax base resets under | 188 | 185 | 165 ||Australian tax | | | ||consolidations | | | |+----------------------------+-----------+-----------+-----------+|Foreign exchange movements -| | | ||tax base of non-monetary | 434 | 613 | 216 ||assets | | | |+----------------------------+-----------+-----------+-----------+|Foreign exchange movements -| (516) | (543) | (255) ||USD debt | | | |+----------------------------+-----------+-----------+-----------+|Withholding taxes | (10) | (2) | - |+----------------------------+-----------+-----------+-----------+|Adoption of IAS 12 to | (13) | (10) | (7) ||jointly controlled entities | | | |+----------------------------+-----------+-----------+-----------+|Remeasurement of royalties | 32 | 48 | 30 ||as income taxes | | | |+----------------------------+-----------+-----------+-----------+|Decrease / (increase) in net| (194) | (25) | (172) ||deferred tax liability | | | |+----------------------------+-----------+-----------+-----------+ +----------------------------+-----------+-----------+-----------+| | 30 June |31 Dec 2004|1 Jul 2004 || | 2005 | | |+----------------------------+-----------+-----------+-----------+|Australian GAAP to IFRS |Tax asset /|Tax asset /|Tax asset /|| |(provision)|(provision)|(provision)|| | | | || | US$M | US$M | US$M |+----------------------------+-----------+-----------+-----------+|Deferred tax on non | (309) | (316) | (321) ||depreciable assets acquired | | | ||in business combinations | | | |+----------------------------+-----------+-----------+-----------+|Foreign exchange movements -| | | ||tax base of non-monetary | 434 | 613 | 216 ||assets | | | |+----------------------------+-----------+-----------+-----------+|Foreign exchange movements -| (516) | (543) | (255) ||USD debt | | | |+----------------------------+-----------+-----------+-----------+|Withholding taxes | (10) | (2) | - |+----------------------------+-----------+-----------+-----------+|Adoption of IAS 12 to | (13) | (10) | (7) ||jointly controlled entities | | | |+----------------------------+-----------+-----------+-----------+|Remeasurement of royalties | 32 | 48 | 30 ||as income taxes | | | |+----------------------------+-----------+-----------+-----------+|Recognition of tax losses | 450 | 275 | 100 |+----------------------------+-----------+-----------+-----------+|Decrease / (increase) in net| 68 | 65 | (237) ||deferred tax liability | | | |+----------------------------+-----------+-----------+-----------+ c Goodwill and business combinations (IFRS 3 / AASB 3 Business Combinations)IFRS requires impairment assessments of goodwill, whereas both previous UK andAustralian GAAP permitted / required the amortisation of goodwill. Businesscombinations undertaken after the date of transition to IFRS (1 July 2004) mustbe accounted for in accordance with IFRS. The acquisition of WMC Resources Ltdwas effective 3 June 2005. Differences in accounting for the acquisition existbetween UK GAAP and IFRS with respect to the measurement of fair value ofinventory and the recognition of deferred tax liabilities, and betweenAustralian GAAP and IFRS with respect to deferred tax assets attributable tounused tax losses. Under previous UK GAAP goodwill existing prior to 1998 wasclassified as a reduction of retained earnings. In order to maintain consistencyin the IFRS treatment of goodwill in the DLC structure, such goodwill has beenreclassified on transition as an asset in the balance sheet. Thereclassification of goodwill was required in order to maintain the accountingfor past business combinations consistent with the previous basis of accountingapplied by the Group under previous Australian GAAP. d Dividend payable (IAS 10 / AASB 110 Events after the Balance Sheet Date)IFRS does not permit the recognition of dividends payable as a liability untilthe dividend has been formally declared by the Directors. Under previous UKGAAP, dividends payable were recognised as a liability in the balance sheet atbalance date, despite the fact they were declared subsequent to balance date. e Equity based compensation (IFRS 2 / AASB 2 Share-based Payment)Under IFRS the cost of employee compensation provided in the form ofequity-based compensation (including shares and options) is measured based onthe fair value of those instruments rather than their intrinsic value asrecognised under previous BHP Billiton Group policy. f Joint ventures (IAS 31 / AASB 131 Interests in Joint Ventures)Under IFRS as implemented in Australia, all joint ventures that are constitutedas a legal entity are accounted for using the equity method. Under both previousUK and Australian GAAP, the BHP Billiton Group's interests in the Escondida,Mozal and Valesul joint ventures were accounted for by proportionalconsolidation. As each of these joint ventures operates through an incorporatedentity, IFRS classifies them as jointly controlled entities and the Australianversion of IFRS mandates the use of the equity method of accounting,notwithstanding that in substance none of the entities operate as independentbusiness entities. The change to single line equity accounting for jointlycontrolled entities does not impact net profit or net equity, however, asdemonstrated in the schedules above, the amounts of profit before tax, incometax expense, investments in jointly controlled entities and other balance sheetand income statement line items are significantly affected. 15 IFRS transition continued g Royalty related taxation (IAS 12 / AASB 112 Income Taxes)Under IFRS, royalties and resource rent taxes are treated as taxationarrangements when they have the characteristics of a tax. For such arrangements,current and deferred tax is provided on the same basis as for other forms oftaxation. Under previous UK and Australian GAAP, such taxes were included inoperating costs, and in some cases, were not calculated in accordance withdeferred tax principles. Material Adjustments to Cash FlowThe use of the equity method of accounting under IFRS for the Group's interestsin the Escondida, Mozal and Valesul jointly controlled entities, as compared toproportional consolidation under previous UK and Australian GAAP, hascorresponding impacts on the Cash Flow Statement. Under IFRS, amounts includedin dividends received from these jointly controlled entities were previouslyincluded elsewhere in cash flows related to operating activities. In additioncapital expenditure and debt repayments for these joint ventures are nowexcluded from the Group's investing and financing cash flows.The presentation of the Cash Flow Statement is consistent with previousAustralian GAAP, however compared to UK GAAP, the cash flows have beenreclassified as operating, investing and financing. 16 Dual Listed Companies Structure and Basis of Preparation of Interim FinancialStatements Dual Listed Companies Structure On 29 June 2001, BHP Billiton Plc (previously known as Billiton Plc), a UKlisted company, and BHP Billiton Limited (previously known as BHP Limited), anAustralian listed company, entered into a Dual Listed Companies (DLC) merger.This was effected by contractual arrangements between the Companies andamendments to their constitutional documents. The effect of the DLC merger is that BHP Billiton Plc and its subsidiaries (theBHP Billiton Plc Group) and BHP Billiton Limited and its subsidiaries (the BHPBilliton Limited Group) operate together as a single economic entity (the BHPBilliton Group), with neither assuming a dominant role. The consolidatedfinancial statements of BHP Billiton therefore include those of BHP BillitonPlc, BHP Billiton Limited and their respective subsidiary companies. The DLC merger was accounted for using the merger method of accounting. Thenature of the DLC merger has resulted in the inclusion of amounts attributableto the shareholders of both BHP Billiton Plc and BHP Billiton Limited in capitaland reserves on the balance sheet, and in attributable profit. Further detailson the DLC structure are included in the BHP Billiton Annual Report 2005. Basis of Preparation This general purpose condensed interim financial report for the six months ended31 December 2005 has been prepared in accordance with IAS 34 / AASB 134 "InterimFinancial Reporting". This includes: •the relevant requirements of Australian Accounting standards (that is, International Financial Reporting Standards (IFRS) as adopted by the Australian Accounting Standards Board) and interpretations effective as of 31 December 2005; •IFRSs and interpretations as adopted by the European Union (EU) as of 31 December 2005; and •those standards and interpretations adopted early as described below. The above are collectively referred to as "IFRS" in this report. The comparative information has also been prepared on this basis, with theexception of certain items, details of which are given below, for whichcomparative information has not been restated. The comparative figures for thefinancial year ended 30 June 2005 are not the statutory accounts of BHP BillitonPlc for that financial year. Those accounts, which were prepared under UKGenerally Accepted Accounting Principles (GAAP), have been reported on by thecompany's auditors and delivered to the registrar of companies. The report ofthe auditors was unqualified and did not contain statements under section 237(2)or (3) of the Companies Act 1985. This is the BHP Billiton Group's first IFRS interim financial report for part ofthe period covered by the first IFRS annual financial report. The interimfinancial report does not include all of the information required for a fullannual financial report. The interim financial report is to be read inconjunction with the most recent annual financial report; however, the basis ofpreparation is different to that of the most recent annual financial report dueto the first time adoption of IFRS. This report must also be read in conjunctionwith any public announcements of BHP Billiton made under its continuousdisclosure obligations. An explanation of how the transition to IFRS has affected the reported financialposition and financial performance of the BHP Billiton Group is provided in note15. This note includes reconciliations of equity and profit for comparativeperiods previously reported under UK GAAP and Australian GAAP to those amountsreported under IFRS. This interim financial report has been prepared on the basis of IFRSs in issuethat are effective, or available for early adoption at the BHP Billiton Group'sfirst IFRS annual reporting date, 30 June 2006. Based on these IFRSs, thedirectors have made assumptions about the accounting policies expected to beadopted when the first IFRS annual financial report is prepared for the yearending 30 June 2006. The BHP Billiton Group has elected to early adopt allAustralian Accounting Standards, IFRSs as adopted by the EU and interpretationsthat have commencement dates later than the BHP Billiton Group's IFRS transitiondate of 1 July 2004 and which permit early adoption, except for IFRS 7 / AASB 7"Financial Instruments: Disclosures", and IFRIC 4 "Determining Whether anArrangement Contains a Lease". The decision to early adopt those standards andinterpretations ensures that policy elections described below, including IFRStransition exemptions, are available. The principal standards andinterpretations that have been early adopted are: 16 Dual Listed Companies Structure and Basis of Preparation of Interim FinancialStatements continued •IFRS 6 / AASB 6 "Exploration for and Evaluation of Mineral Resources" •Revised IAS 19 / AASB 119 "Employee Benefits" •International Financial Reporting Interpretations Committee (IFRIC) pronouncement 5 / Urgent Issues Group (UIG) Interpretation 5 "Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds" IFRS 1 / AASB 1, which governs the first time adoption of IFRSs, in generalrequires accounting policies to be applied retrospectively in order to determinean opening balance sheet at BHP Billiton's IFRS transition date of 1 July 2004,and allows certain exemptions on the transition to IFRS which BHP Billiton haselected to apply. Those elections considered significant to BHP Billiton includedecisions to: •not restate previous mergers or acquisitions and the accounting thereof; •measure property, plant and equipment at deemed cost, being the carrying value of property, plant and equipment immediately prior to the date of transition, with no adjustment made to fair value; •not apply the recognition and measurement requirements of IFRS 2 / AASB 2 "Share-based Payment" to equity instruments granted before 7 November 2002; •recognise the cumulative effect of actuarial gains and losses on defined benefit employee schemes in retained earnings as at the transition date; and •transfer all foreign currency translation differences, previously held in reserves, to retained earnings at the transition date. In addition, BHP Billiton has applied the exemption available under IFRS 1 /AASB 1 whereby IAS 32 / AASB 132 "Financial Instruments: Disclosure andPresentation" and IAS 39 / AASB 139 "Financial Instruments: Recognition andMeasurement" shall apply from 1 July 2005 and not for the year ended 30 June2005. Accordingly, transitional adjustments in respect of IAS 32 / AASB 132 andIAS 39 / AASB 139 have been recorded against retained profits and reserves, asapplicable, at 1 July 2005. Furthermore, the BHP Billiton Group's DLC structure results in two parententities with their own statutory reporting obligations, one in the UK and theother in Australia. While the UK and Australia are transitioning to IFRS-basedfinancial reporting regimes in the same timeframe, the DLC structure createsunique IFRS implementation issues, including: i. •in the UK, listed groups are required to comply with IFRSs as adopted by the EC; there is a risk that IFRS as adopted by the EC at 30 June 2006 may not be consistent with IFRS applicable in Australia;ii. •the Australian Accounting Standards Board has approved standards based on IFRSs, some of which mandate particular policies that are optional (and not applied uniformly by other entities) in the UK; andiii. •continued development and interpretation of IFRSs prior to 30 June 2006 that could affect the ultimate difference between previous reporting frameworks and IFRS applicable in each jurisdiction. The regulatory bodies that promulgate IFRS and its country-specificimplementations have significant ongoing projects that could affect the ultimatedifferences between Australian GAAP, UK GAAP and IFRS and their impact on theBHP Billiton Group's financial statements. Accordingly, the basis of preparation and accounting policies may requireadjustment before the Group issues its first complete set of IFRS financialstatements for the year ending 30 June 2006. Basis of measurement The financial report is drawn up on the basis of historical cost principles,except for derivative financial instruments and investments held for trading oravailable for sale, which are measured at fair value. Currency of presentation All amounts are expressed in millions of US dollars unless otherwise stated. TheBHP Billiton Group's presentation currency and the functional currency of themajority of its operations is US dollars as this is the principal currency ofthe economic environments in which they operate. 17 Accounting Policies Principles of consolidation The financial report of the BHP Billiton Group includes the consolidation of BHPBilliton Limited, BHP Billiton Plc and their respective subsidiaries.Subsidiaries are entities controlled by either parent entity. Control existswhere either parent entity has the power to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. Subsidiariesare included in the consolidated financial report from the date controlcommences until the date control ceases. Where the BHP Billiton Group's interestis less than 100 per cent, the interest attributable to outside shareholders isreflected in minority interests. The effects of all transactions betweenentities within the BHP Billiton Group have been eliminated. Intangible assets Amounts paid for the acquisition of identifiable (patents, trademarks andlicences) intangible assets are capitalised at the fair value of considerationpaid. Identifiable intangible assets with a finite life are amortised on astraight-line basis over their expected useful life. The BHP Billiton Group hasno identifiable intangible assets for which the expected useful life isindefinite. Where the fair value of the consideration paid for a businessacquisition exceeds the fair value of the identifiable assets and liabilitiesacquired, the difference is treated as goodwill. Goodwill is not amortised,however the carrying amount of all goodwill and identifiable intangible assetsis assessed against its recoverable amount as explained below under 'Recoverableamounts of non-current assets'. On the subsequent disposal or termination of a previously acquired business, anyremaining balance of associated goodwill and identifiable intangible assets isincluded in the determination of the profit or loss on disposal / termination. Investments accounted for using the equity method Investments in jointly controlled entities and associated entities are accountedfor using the equity method of accounting. Under the equity method, the cost ofthe investment in each jointly controlled entity and associated entity isadjusted by the BHP Billiton Group's proportionate share of the entity's netprofit or loss. Joint ventures The BHP Billiton Group undertakes a number of business activities through jointventures. Joint ventures are established through contractual arrangements thatrequire the unanimous consent of each of the venturers regarding the strategicfinancial and operating policies of the venture (joint control). The BHPBilliton Group's joint ventures are of two types: Jointly controlled entities A jointly controlled entity is a corporation, partnership or other entity, inwhich each venturer holds an interest. A jointly controlled entity operates inthe same way as other entities, controlling the assets of the joint venture,earning its own income and incurring its own liabilities and expenses. Interestsin jointly controlled entities are accounted for using the equity method. Jointly controlled assets and operations The BHP Billiton Group has certain contractual arrangements with otherparticipants to engage in joint activities that do not give rise to a jointlycontrolled entity. These arrangements involve the joint ownership of assetsdedicated to the purposes of each venture. These contractual arrangements do notcreate a jointly controlled entity due to the fact that the joint ventureoperates under the policies of the venturers who directly derive the benefits ofoperation of their jointly owned assets, rather than deriving returns from aninterest in a separate entity carrying on its own trade or business. The financial report of the BHP Billiton Group includes its share of the assetsin such joint ventures, together with the liabilities, revenues and expensesarising jointly or otherwise from those operations. All such amounts aremeasured in accordance with the terms of each arrangement, which is usually inproportion to the BHP Billiton Group's interest in the jointly owned assets. 17 Accounting Policies continued Foreign currencies The BHP Billiton Group's reporting currency and the functional currency of themajority of its operations is US dollars, as this is the principal currency ofthe economic environments in which they operate. Transactions denominated in foreign currencies (currencies other than thefunctional currency of an operation) are recorded using the exchange rate rulingat the date of the underlying transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated using the rate of exchangeruling at year end and the gains or losses on retranslation are included in theIncome Statement, with the exception of foreign exchange gains or losses onforeign currency provisions for site restoration and rehabilitation which arecapitalised in property, plant and equipment, and foreign exchange gains andlosses on foreign currency borrowings designated as a hedge of the net assets offoreign operations. The Income Statement of subsidiaries and joint ventures which have functionalcurrencies other than US dollars are translated to US dollars at the date of thetransaction. Assets and liabilities are translated at exchange rates prevailingat year end. Exchange variations resulting from the retranslation at closingrate of the net investment in such subsidiaries and joint ventures, togetherwith differences between their Income Statement translated at actual and closingrates, are recorded as a movement in the exchange fluctuation account. Exchangedifferences arising on long-term foreign currency borrowings used to financesuch investments, together with any related income tax effects, are alsorecorded as a movement in the exchange fluctuation account. The balance of theexchange fluctuation account relating to a foreign operation that is disposedof, or partially disposed of, is recognised in the Income Statement in the yearof disposal. Share Based Payments For share based payments, the fair value at grant date of equity settled shareawards made by the BHP Billiton Group is charged to profit over the period forwhich the benefits of employee services are expected to be derived. Thecorresponding accrued employee entitlement is recorded in the Employee ShareAwards reserve. The fair value of awards is calculated using an option pricingmodel which considers the following factors: •Exercise price •Expected life of the award •Current market price of the underlying shares •Expected volatility •Expected dividends •Risk-free interest rate •Market based performance hurdles Where awards are forfeited because non-market based vesting conditions are notsatisfied, the expense previously recognised is proportionately reversed. Whereawards are satisfied by on-market purchases of BHP Billiton Group shares, thecost of acquiring the shares is carried in the Employee Share Awards reserve,and any difference between that amount and the remuneration expense recognisedis taken to retained earnings. The tax effect of awards granted is recognised inincome tax expense, except to the extent that the total tax deductions areexpected to exceed the cumulative remuneration expense. In this situation, theexcess of the associated current or deferred tax is recognised in equity as partof the Employee Share Awards reserve. 17 Accounting Policies continued Sales revenue Revenue from the sale of goods and disposal of other assets is recognised whenpersuasive evidence, usually in the form of an executed sales agreement, of anarrangement exists indicating there has been a transfer of risks and rewards tothe customer, no further work or processing is required by the BHP BillitonGroup, the quantity and quality of the goods has been determined with reasonableaccuracy, the price is fixed or determinable, and collectibility is reasonablyassured. This is generally when title passes. In the majority of sales for most commodities, sales agreements specify thattitle passes on the bill of lading date which is the date the commodity isdelivered to the shipping agent. Revenue is recognised on the bill of ladingdate. For certain sales (principally coal sales to adjoining power stations anddiamond sales), title passes and revenue is recognised when the goods have beendelivered. In cases where the terms of the executed sales agreement allows for anadjustment to the sales price based on a survey of the goods by the customer(for instance an assay for mineral content), recognition of the sales revenue isbased on the most recently determined estimate of product specifications. In the case of certain exchange traded commodities, the sales price isdetermined on a provisional basis at the date of sale; adjustments to the salesprice occur based on movements in quoted market prices up to the date of finalpricing. Revenue on provisionally priced sales is recognised based on theestimated fair value of the total consideration receivable. Fair value of thefinal sales price adjustment is estimated based on the lower of current andforward market prices. Revenue is not reduced for royalties and other taxes payable from production. The BHP Billiton Group separately classifies sales of Group production fromsales of third party products due to the significant difference in profit marginearned on these sales. Exploration, evaluation and development expenditure Development expenditure, including deferred overburden removal costs, for bothminerals and petroleum activities is capitalised. In respect of minerals activities, exploration and evaluation expenditure ispredominantly charged to the Income Statement as incurred. In limitedcircumstances, such expenditure is capitalised when: • it is expected that the expenditure will be recouped by future exploitation orsale; or • substantial exploration and evaluation activities have identified a mineralresource with sufficient certainty that permits a reasonable assessment of theexistence of commercially recoverable reserves. In respect of petroleum activities, exploration and evaluation expenditure isaccounted for on an area-of-interest basis in accordance with the successfulefforts method where: • significant exploration licence acquisition costs are capitalised andamortised over the term of the licence, except for costs in new unexplored areaswhich are expensed as incurred; • administrative costs that are not directed to a specific area-of-interest areexpensed in the year in which they are incurred; • all other exploration and evaluation expenditure is charged against the IncomeStatement except where the expenditure relates to an area-of-interest and it isexpected that the expenditure will be recouped by future exploitation or sale,or, at Balance Sheet date exploration and evaluation activities have not reacheda stage which permits a reasonable assessment of the existence of commerciallyrecoverable reserves, in which case the expenditure is capitalised; • exploratory wells that find oil or gas in an area requiring major capitalexpenditure before production can begin are continually evaluated to assure thatcommercial quantities of reserves have been found or that additional explorationwork is underway or planned. To the extent it is considered that the relevantexpenditure will not be recovered, it is written off; and • when proved reserves of oil or gas are determined and development issanctioned and completed, the relevant expenditure, together with relateddevelopment expenditure, is amortised on a unit of production basis. 17 Accounting Policies continued Deferred overburden removal costs Stripping ratios are a function of the quantity of ore mined compared with thequantity of overburden, or waste, required to be removed to mine the ore.Deferral of costs to the Balance Sheet is made, where appropriate, when actualstripping ratios vary from average stripping ratios. Deferral of costs to theBalance Sheet is not made when the waste to ore ratio is expected to beconsistent throughout the life of the mine. Costs which have previously been deferred to the Balance Sheet (deferredoverburden removal costs) are included in the Income Statement on a unit ofproduction basis utilising average stripping ratios. Changes in estimates ofaverage stripping ratios are accounted for prospectively from the date of thechange. As it is not possible to separately identify cash inflows relating to deferredoverburden removal costs, such assets are grouped with other assets of a cashgenerating unit for the purposes of undertaking impairment assessments, wherenecessary, based on future cash flows for the operation as a whole. Research and development expenditure Expenditure for research is included in the Income Statement as incurred on thebasis that continuing research is part of the overall cost of being in business.To the extent that future benefits deriving from development expenditure areexpected beyond reasonable doubt to exceed such expenditure, these costs arecapitalised and amortised over the period of expected benefit. Finance costs Finance costs are generally expensed as incurred except where they relate to thefinancing of construction or development of qualifying assets requiring asubstantial period of time to prepare for their intended future use. Financecosts are capitalised up to the date when the asset is ready for its intendeduse. The amount of finance costs capitalised (before the effects of income tax)for the period is determined by applying the interest rate applicable toappropriate borrowings outstanding during the period to the average amount ofaccumulated expenditure for the assets during the period. Property, plant and equipment Valuation in financial statements Property, plant and equipment is recorded at cost. Recoverable amounts of non-current assets All non-current assets are reviewed at least annually to determine whether theircarrying amounts require write-down to recoverable amounts. Assets may bereviewed more regularly if an event or change in circumstances indicates thatthe carrying amount of an asset may not be recoverable. If the asset isdetermined to be impaired, an impairment loss will be recorded, and the assetwritten down, based on the amount by which the asset carrying amount exceeds thehigher of fair value less costs to sell and value in use. Value in use isdetermined by discounting expected future cash flows using a risk-adjustedpre-tax discount rate appropriate to the risks inherent in the asset. Futurecash flows are estimated based on expected production and sales volumes,commodity prices (considering current and historical prices, price trends andrelated factors), recoverable reserves, operating costs, reclamation costs andcapital costs. These estimates are subject to risk and uncertainty; hence thereis a possibility that changes in circumstances will alter these projections,which may impact the recoverability of these assets. Disposals Disposals are taken to account in net profit from continuing operations, exceptwhere they represent the sale or abandonment of a significant business or all ofthe assets associated with such a business, and are not considered to be of arecurring nature, in which case they are treated as significant items. Mineral rights Acquired mineral rights are accounted for at cost with provisions made whereimpairments in value have occurred. Exploitable mineral rights are capitalisedand depreciated from commencement of production over the production life of theasset. 17 Accounting Policies continued Mineral leases The BHP Billiton Group's mineral leases are of sufficient duration (or convey alegal right to renew for sufficient duration) to enable all reserves on theleased properties to be mined in accordance with current production schedules. Depreciation of property, plant and equipment The carrying amounts of property, plant and equipment (including the originalcapital expenditure and any subsequent capital expenditure) is depreciated toits residual value over the useful economic lives of the specific assetsconcerned or the life of the mine or lease, if shorter. The major categories ofproperty, plant and equipment are depreciated on a unit of production and/orstraight-line basis as follows: • Buildings - 25 to 50 years • Land - not depreciated • Plant, machinery and equipment - 4 to 30 years • Mineral rights - based on the estimated life of reserves on a unit ofproduction basis • Exploration, evaluation and development expenditure of minerals assets andother mining assets - over the life of the proven and probable reserves on aunit of production basis • Petroleum interests - over the life of the proved developed oil and gasreserves on a unit of production basis • Leasehold land and buildings - over the life of the lease up to a maximum of50 years • Vehicles - 3 to 5 years straight-line • Capitalised leased assets - up to 50 years or life of lease, whichever isshorter • Computer systems - up to 8 years straight-line Changes in estimates are accounted for over the estimated remaining economiclife or the remaining commercial reserves as applicable. Leased assets Assets held under leases which result in the BHP Billiton Group receivingsubstantially all the risks and rewards of ownership of the asset (financeleases) are capitalised at the lower of the fair value of the property, plantand equipment or the estimated present value of the minimum lease payments. The corresponding finance lease obligation is included within interest bearingliabilities. The interest element is allocated to accounting periods during thelease term to reflect a constant rate of interest on the remaining balance ofthe obligation for each accounting period. Operating lease assets are not capitalised and rental payments are included inthe Income Statement on a straight-line basis over the lease term. Provision ismade for the present value of future operating lease payments in relation tosurplus lease space when it is first determined that the space will be of noprobable future benefit. Operating lease incentives are recognised as aliability when received and subsequently reduced by allocating lease paymentsbetween rental expense and reduction of the liability. Inventories Inventories, including work in progress, are valued at the lower of cost and netrealisable value. Cost is determined primarily on the basis of average costs. Insome cases, the first-in-first-out method or actual cost is used. For processedinventories, cost is derived on an absorption costing basis. Cost comprises costof purchasing raw materials and cost of production, including attributablemining and manufacturing overheads. 17 Accounting Policies continued Taxation Taxation on the profit or loss for the year comprises current and deferred tax.Taxation is recognised in the Income Statement except to the extent that itrelates to items recognised directly in equity, in which case the tax amountsare recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using rates enacted or substantively enacted at the year end, and includes anyadjustment to tax payable in respect of previous years. It further excludesitems that are never taxable or deductible. Deferred tax is provided using the balance sheet liability method, providing forthe tax effect of temporary differences between the carrying amount of assetsand liabilities for financial reporting purposes and the amounts used for taxassessment or deduction purposes. Where an asset has no deductible ordepreciable amount for income tax purposes, but has a deductible amount forcapital gains tax purposes, that amount is included in the determination oftemporary differences. The tax effect of certain temporary differences is notrecognised; principally with respect to goodwill; temporary differences arisingon the initial recognition of assets or liabilities (other than those arising ina business combination or in a manner that initially impacted accounting ortaxable profit); and temporary differences relating to investments insubsidiaries, joint ventures and associates to the extent that the BHP BillitonGroup is able to control the reversal of the temporary difference and thetemporary difference is not expected to reverse in the foreseeable future. Theamount of deferred tax provided is based on the expected manner and timing ofrealisation or settlement of the carrying amount of assets and liabilities,using tax rates enacted or substantively enacted at period end. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reviewed at each balance sheet date andamended to the extent that it is no longer probable that the related tax benefitwill be realised. Deferred tax assets and liabilities are offset when theyrelate to income taxes levied by the same taxation authority and the BHPBilliton Group has both the right and the intention to settle its current taxassets and liabilities on a net or simultaneous basis. Royalties and resource rent taxes are treated as taxation arrangements when theyhave the characteristics of a tax. This is considered to be the case when theyare imposed under Government authority and the amount payable is calculated byreference to revenue derived (net of any allowable deductions) after adjustmentfor items comprising temporary differences. For such arrangements, current anddeferred tax is provided on the same basis as described above for other forms oftaxation. Obligations arising from royalty arrangements that do not satisfythese criteria are recognised as current provisions and included in expenses. Provision for employee benefits Provision is made in the financial statements for all employee benefits,including on-costs. In relation to industry-based long service leave funds, theBHP Billiton Group's share of receivables and payables, including obligationsfor funding shortfalls, have been recognised. Liabilities for wages and salaries, including non-monetary benefits, annualleave and accumulating sick leave expected to be settled within 12 months of thereporting date are recognised in other creditors or provision for employeebenefits in respect of employees' services up to the reporting date and aremeasured at the amounts expected to be paid when the liabilities are settled.Liabilities for non-accumulating sick leave are recognised when the leave istaken and measured at the rates paid or payable. The liability for long service leave expected to be settled within 12 months ofthe reporting date is recognised in the provision for employee benefits and ismeasured in accordance with annual leave above. The liability for long serviceleave expected to be settled more than 12 months from the reporting date isrecognised in the provision for employee benefits and measured as the presentvalue of expected future payments to be made in respect of services provided byemployees up to the reporting date. Consideration is given to expected futurewage and salary levels, experience of employee departures and periods ofservice. Expected future payments are discounted using market yields at thereporting date on national government bonds with terms to maturity and currencythat match, as closely as possible, the estimated future cash outflows. Superannuation, pensions and other post-retirement benefits The BHP Billiton Group operates or participates in a number of pension(including superannuation) schemes throughout the world. The funding of theschemes complies with local regulations. The assets of the schemes are generallyheld separately from those of the BHP Billiton Group and are administered bytrustees or management boards. For schemes of the defined-contribution type orthose operated on an industry-wide basis, where it is not possible to identifyassets attributable to the participation by the BHP Billiton Group's employees,the pension charge is calculated on the basis of contributions payable. For defined benefit schemes, the cost of providing pensions is charged to theIncome Statement so as to recognise current and past service costs, interestcost on defined benefit obligations, and the effect of any curtailments orsettlements, net of expected returns on plan assets. Actuarial gains and lossesare recognised in full directly in equity. An asset or liability is consequentlyrecognised in the Balance Sheet based on the present value of defined benefitobligations, any unrecognised past service costs and the fair value of planassets. Certain BHP Billiton Group companies provide post-retirement medical benefits toqualifying retirees. In some cases the benefits are provided through medicalcare schemes to which the company, the employees, the retirees and coveredfamily members contribute. In some schemes, there is no funding of the benefitsbefore retirement. These schemes are recognised on the same basis as describedfor defined benefit pension schemes. Provision for restoration and rehabilitation BHP Billiton Group companies are generally required to decommission andrehabilitate mines, oil and gas facilities and processing sites at the end oftheir producing lives to a condition acceptable to the relevant authorities andconsistent with the BHP Billiton Group's environmental policies. The expected cost of any approved decommissioning or rehabilitation programme,discounted to its net present value, is provided when the related environmentaldisturbance occurs, based on the BHP Billiton Group's interpretation ofenvironmental and regulatory requirements and its own environmental policieswhere these are more stringent and this has created an obligation on the BHPBilliton Group. The cost is capitalised where it gives rise to future benefits,whether the rehabilitation activity is expected to occur over the life of theoperation or at the time of closure. The capitalised cost is amortised over thelife of the operation and the increase in the net present value of the provisionfor the expected cost is included in financial expenses. Expecteddecommissioning and rehabilitation costs are based on the discounted value ofthe estimated future cost of detailed plans prepared for each site. Where thereis a change in the expected decommissioning and restoration costs, an adjustmentis recorded against the carrying value of the provision and any related asset,and the effect is then recognised in the Income Statement on a prospective basisover the remaining life of the operation. The provisions referred to above do not include any amounts related toremediation costs associated with unforeseen circumstances. Such costs arerecognised when environmental contamination as a result of oil and chemicalspills, seepage or other unforseen events gives rise to a loss which is probableand reliably estimable. The cost of other activities to prevent and control pollution and torehabilitate the environment that is not included in provisions is charged tothe Income Statement as incurred. 17 Accounting Policies continued Financial instruments The BHP Billiton Group adopted IAS 39 / AASB 139 "Financial Instruments:Recognition and Measurement" from 1 July 2005. Adjustments have been made to theopening balance sheet at 1 July 2005 to reflect this change in accounting policyfor the adoption of IAS 39 / AASB 139; these are shown separately in Note 11Total equity. Financial assets other than derivatives are recognised at fair value oramortised cost in accordance with the requirements of IAS 39 / AASB 139. Wherethey are carried at fair value, gains and losses on remeasurement are recogniseddirectly in equity unless the financial assets have been designated as beingheld at fair value through profit, in which case the gains and losses arerecognised directly in the Income Statement. All financial liabilities otherthan derivatives are carried at amortised cost. Derivatives, including those embedded in other contractual arrangements, areinitially recognised at fair value on the date a derivative contract is enteredinto and are subsequently remeasured to their fair value. The method ofrecognising the resulting gain or loss depends on whether the derivative isdesignated as a hedging instrument, and if so, the nature of the item beinghedged. The measurement of fair value is based on quoted market prices. Where noprice information is available from a quoted market source, alternative marketmechanisms or recent comparable transactions, fair value is estimated based onthe BHP Billiton Group's views on relevant future prices, net of valuationallowances to accommodate liquidity, modelling and other risks implicit in suchestimates. The BHP Billiton Group's foreign exchange contracts held for hedging purposesare generally accounted for as cash flow hedges. Interest rate swaps held forhedging purposes are generally accounted for as fair value hedges. Derivativesembedded within other contractual arrangements and commodity based transactionsexecuted through derivative contracts do not qualify for hedge accounting. Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fairvalue hedges are recorded in the Income Statement, together with any changes inthe fair value of the hedged asset or liability that are attributable to thehedged risk. Cash flow hedge The effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges is recognised in equity in thehedging reserve. The gain or loss relating to the ineffective portion isrecognised immediately in the Income Statement. Amounts accumulated in equity are recycled in the Income Statement in theperiods when the hedged item affects profit or loss. However, when the forecasttransaction that is hedged results in the recognition of a non-financial asset(for example, plant and equipment purchases) or a non-financial liability, thegains and losses previously deferred in equity are transferred from equity andincluded in the measurement of the initial cost or carrying amount of the assetor liability. When a hedging instrument expires or is sold or terminated, or when a hedge nolonger meets the criteria for hedge accounting, any cumulative gain or lossexisting in equity at that time remains in equity and is recognised when theforecast transaction is ultimately recognised in the Income Statement. When ahedged forecast transaction is no longer expected to occur, the cumulative hedgegain or loss that was reported in equity is immediately transferred to theIncome Statement. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes inthe fair value of any derivative instrument that does not qualify for hedgeaccounting are recognised immediately in the Income Statement. 17 Accounting Policies continued Prior to 1 July 2005, derivative financial instruments were accounted for usinghedge accounting principles within Australian GAAP and UK GAAP wherebyderivatives were matched to the specifically identified commercial risks beinghedged. These matching principles were applied to both realised and unrealisedtransactions. Derivatives undertaken as hedges of anticipated transactions wererecognised when such transactions were recognised. Upon recognition of theunderlying transaction, derivatives were valued at the appropriate market spotrate. When an underlying transaction could no longer be identified, gains orlosses arising from a derivative that had been designated as a hedge of thattransaction would be taken to the Income Statement whether or not suchderivative was terminated. When a hedge was terminated, the deferred gain orloss that arose prior to termination was: (a) deferred and included in the measurement of the anticipated transaction when it occurred; or (b) taken to the Income Statement where the anticipated transaction was no longer expected to occur. The premiums paid on interest rate options and foreign currency put and calloptions were included in debtors and were deferred and included in thesettlement of the underlying transaction. Available for sale and trading investments Available for sale and trading investments are measured at fair value. Gains andlosses on the re-measurement of trading investments are recognised directly inthe Income Statement. Gains and losses on the re-measurement of available forsale investments are recognised directly in equity, and subsequently recognisedin the Income Statement when realised by sale or redemption, or when a reductionin fair value is judged to represent an impairment. Prior to 1 July 2005, available for sale investments were classified as fixedasset investments and, other than for joint ventures and associates, were statedindividually at cost less provisions for impairments. Trading investments wereclassified as current asset investments and valued at the lower of cost and netrealisable value. In determining net realisable values, market values were usedin the case of listed investments and Directors' estimates were used in the caseof unlisted investments. Impact of judgement and estimates The preparation of the BHP Billiton Group's financial report requires managementto make judgements and estimates that affect the reported amounts of assets andliabilities and the disclosure of contingent assets and liabilities at the dateof the financial report and the reported revenues and expenses during theperiod. On an ongoing basis, management evaluates its judgements and estimatesthat impact on the financial report. Management bases its judgements andestimates on historical experience and on various other factors that arebelieved to be reasonable under the circumstances, the results of which form thebasis of making judgements about the carrying values of assets and liabilitiesthat are not readily apparent from other sources. Actual results may differ fromthese estimates. Rounding of amounts Amounts in this financial report have, unless otherwise indicated, been roundedto the nearest million dollars. Exchange rates The following exchange rates against the US dollar have been applied in thefinancial report: +------------+------------+------------+------------+-----------+-----------+-------------+| | Average| Average| Average| As at| As at| As at|+------------+------------+------------+------------+-----------+-----------+-------------+| | Half year| Half year| Year ended|31 December|31 December| 30 June 2005|| | ended 31| ended 31| 30 June| 2005| 2004| || | December| December| 2005| | | || | 2005| 2004| | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|Australian | 0.75| 0.73| 0.75| 0.73| 0.78| 0.76||dollar (a) | | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|Brazilian | 2.30| 2.89| 2.73| 2.33| 2.66| 2.36||real | | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|Canadian | 1.19| 1.27| 1.25| 1.16| 1.20| 1.23||dollar | | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|Chilean peso| 540| 612| 595| 514| 557| 579|+------------+------------+------------+------------+-----------+-----------+-------------+|Colombian | 2 297| 2 556| 2 454| 2 287| 2 353| 2 329||peso | | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|South | 6.52| 6.21| 6.21| 6.33| 5.65| 6.67||African rand| | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+|Euro | 0.83| 0.80| 0.79| 0.84| 0.73| 0.83|+------------+------------+------------+------------+-----------+-----------+-------------+|UK pound | 0.57| 0.54| 0.54| 0.58| 0.52| 0.55||sterling | | | | | | |+------------+------------+------------+------------+-----------+-----------+-------------+ (a) Displayed as US$ to A$1 based on common convention. Directors' Report The Directors present their report together with the interim financialstatements for the half year ended 31 December 2005 and the auditor's reviewreport thereon. REVIEW OF OPERATIONS A detailed review of the Group's operations, the results of those operationsduring the half year ended 31 December 2005 and likely future developments aregiven on pages 1 to 12. Dividend Full details of dividends are given on page 24. Events After End of Half Year No matters or circumstances have arisen since the end of the half year that havesignificantly affected, or may significantly affect, the operations, results ofoperations or state of affairs of the BHP Billiton Group in subsequentaccounting periods. BOARD OF DIRECTORS The Directors of the Company in office at any time during or since the end ofthe half year are: Mr D R Argus - Chairman since April 1999 (on the Board of Directors sinceNovember 1996) Mr D A Crawford - a Director since May 1994 Mr M A Chaney - a Director from May 1995 until November 2005 Dr D A Jenkins - a Director since March 2000 Dr J M Schubert - a Director since June 2000 Dr D C Brink - a Director since June 2001 (a Director of Billiton Plc since June1997) Lord Renwick of Clifton - a Director from June 2001 until November 2005 (aDirector of Billiton Plc from June 1997) Mr C W Goodyear - an Executive Director since November 2001 Dr J G Buchanan - a Director since February 2003 Mr M Salamon - an Executive Director since February 2003 Mr C A Cordeiro - a Director since February 2005 Dr E G de Planque - a Director since September 2005 Mr M Kloppers - an Executive Director since January 2006 Mr C J Lynch - an Executive Director since January 2006 AUDITOR'S INDEPENDENCE DECLARATION KPMG in Australia are the auditors of BHP Billiton Limited. Their auditor'sindependence declaration under Section 307C of the Australian Corporations Act2001 is set out on page 44. ROUNDING OF AMOUNTS BHP Billiton Limited is a company of a kind referred to in Australian Securitiesand Investments Commission Class Order No 98/100, dated 10 July 1998. Amounts inthis Directors' Report and financial report have been rounded to the nearestmillion dollars in accordance with that class order. Signed in accordance with a resolution of the Board. D R ArgusChairman Melbourne15 February 2006 Directors' Declaration In the opinion of the directors of the BHP Billiton Group: (a) the financial statements and notes set out on pages 13 to 43, are in accordance with the Listing Rules of the Financial Services Authority in the United Kingdom, applicable accounting standards and the Australian Corporations Act 2001, including giving a true and fair view of the financial position of the BHP Billiton Group as at 31 December 2005 and of its performance, as represented by the results of its operations and cash flows for the half-year ended on that date. (b) there are reasonable grounds to believe that each of the BHP Billiton Group, BHP Billiton Limited and BHP Billiton Plc, will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the directors. D R ArgusChairman Melbourne15 February 2006 Auditor's Independence Declaration To: the directors of BHP Billiton Limited I declare that, to the best of my knowledge and belief, in relation to thereview for the half-year ended 31 December 2005 there have been: (i) no contraventions of the auditor independence requirements as set out in the Australian Corporations Act 2001 in relation to the review; and (ii) no contraventions of any applicable code of professional conduct in relation to the review. This declaration is in respect of BHP Billiton Limited and the entitiescontrolled during the period. KPMG Peter NashPartner Melbourne15 February 2006 Independent review report of KPMG Audit Plc to BHP Billiton Plc and KPMG to themembers of BHP Billiton Limited Scope KPMG Audit Plc and KPMG have reviewed the financial information of the BHPBilliton Group for the half year ended 31 December 2005, set out on pages 13 to43, and KPMG has also reviewed the directors' declaration set out on page 44. KPMG Audit Plc's report is made solely to BHP Billiton Plc in accordance withthe terms of KPMG Audit Plc's engagement to assist BHP Billiton Plc in meetingthe requirements of the Listing Rules of the Financial Services Authority. KPMGAudit Plc's review has been undertaken so that we might state to the companythose matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company for our review work, for thisreport, or for the conclusions we have reached. KPMG has performed an independent review of the interim financial report inorder to state whether, on the basis of the procedures described, anything hascome to its attention that would indicate that the interim financial report isnot presented fairly in accordance with Australian Accounting Standard AASB 134Interim Financial Reporting and other mandatory financial reporting requirementsin Australia and statutory requirements, so as to present a view which isconsistent with our understanding of the group's financial position, andperformance as represented by the results of its operations and its cash flowsand in order for BHP Billiton Limited to lodge the interim financial report withthe Australian Securities and Investments Commission. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the Directors. The Directors areresponsible for preparing the interim financial report: •in accordance with the Listing Rules of the Financial Services Authority in the United Kingdom which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed; and •in accordance with the Australian Corporations Act 2001 including the relevant reconciling information regarding adjustments required under Australian Accounting Standard AASB 1 First-Time Adoption of Australian equivalents to International Financial Reporting Standards. As disclosed in note 16 to the financial statements, the next annual financialstatements of the group will be prepared in accordance with IFRS as adopted bythe European Union and Australian Accounting Standards. This interim financialreport has been prepared in accordance with IAS 34/AASB 134 Interim FinancialReporting and the requirements of IFRS 1 First-time Adoption of InternationalFinancial Reporting Standards/AASB 1 First Time Adoption of AustralianEquivalents to International Financial Reporting Standards relevant to interimfinancial reports. The accounting policies that have been adopted in preparing the financialstatements are consistent with those that the Directors currently intend to usein the next annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with those IFRS as adopted by the European Union and AustralianAccounting Standards. Review work performed KPMG Audit Plc conducted its review in accordance with guidance contained inBulletin 1999/4 Review of interim financial information issued by the AuditingPractices Board for use in the United Kingdom. KPMG conducted its review in accordance with Australian Auditing Standardsapplicable to review engagements. A review consists principally of making enquiries of group management andapplying analytical procedures to the financial information and underlyingfinancial data and, based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. A reviewis substantially less in scope than an audit performed in accordance withAuditing Standards and therefore provides a lower level of assurance than anaudit. Accordingly, we do not express an audit opinion on the financialinformation. Review conclusion by KPMG Audit Plc On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2005. KPMG Audit PlcChartered Accountants London15 February 2006 Review conclusion by KPMG Based on our review, which is not an audit, we have not become aware of anymatter that makes us believe that the half year financial report of BHP BillitonLimited is not in accordance with: a) the Corporations Act 2001, including: i) giving a true and fair view of the group's financial position as at 31December 2005 and of its performance for the half year ended on that date; and ii) complying with Australian Accounting Standard AASB 134 Interim FinancialReporting and the Corporations Regulations 2001; and b) other mandatory financial reporting requirements in Australia. KPMG Peter NashPartner Melbourne15 February 2006BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209Registered in Australia Registered in England and WalesRegistered Office: Level 27, 180 Lonsdale Street Registered Office: Neathouse Place London SW1V 1BHMelbourne Victoria 3000 United KingdomTelephone +61 1300 554 757 Facsimile +61 3 9609 3015 Telephone +44 20 7802 4000 Facsimile +44 20 7802 4111 The BHP Billiton Group is headquartered in Australia This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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