16th Feb 2005 07:01
BHP Billiton PLC16 February 2005 Date 16 February 2005Number 06/05 BHP BILLITON RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2004 • Record half yearly EBITDA, EBIT and attributable profit. • EBITDA increase of 67% to US$5.2 billion, and EBIT increase of 95% to US$4.3 billion (both excluding exceptional items). • Attributable profit of US$2.8 billion, an increase of 127%, and earnings per share of 44.5 US cents, an increase of 128% compared with the prior period (both excluding exceptional items). • Record half yearly production volumes for six major commodities. • Available cash flow of US$3.5 billion, an increase of 116%. • Commissioning of six major projects since 30 June 2004, with a further ten major projects in development. • Successful completion of the US$2 billion capital management programme including the US$1.8 billion off-market buy-back in BHP Billiton Limited and rebasing the interim dividend. • Interim dividend rebased to 13.5 US cents per share, an increase of 69% on the prior period interim dividend. Half year ended 31 December 2004 2003 Change US$M US$M Turnover (1) 15 521 10 963 41.6% EBITDA (1) (2) (3) 5 212 3 128 66.6% EBIT (1) (2) (3) 4 258 2 183 95.1% Attributable profit (excluding exceptional items) (1) 2 757 1 213 127.3% Attributable profit (including exceptional items) (1) 2 813 1 339 110.1% Available cash flow (4) 3 513 1 625 116.2% Basic earnings per share (US cents) (excluding exceptional items) (1) 44.5 19.5 128.2% Basic earnings per share (US cents) (including exceptional items) (1) 45.4 21.5 111.2% EBITDA interest coverage (times) (1) (2) (3) (5) 33.6 14.8 127.0% Dividend per share (US cents) 13.5 8.0 68.8% (1) Including the Group's share of joint ventures. (2) Excluding exceptional items. (3) EBIT is earnings before interest and tax. EBITDA is EBIT beforedepreciation, impairments, and amortisation of US$954 million (comprising Groupdepreciation, impairments and amortisation of US$881 million and joint ventureand associate depreciation and amortisation of US$73 million) for the half yearended 31 December 2004 and US$945 million (comprising Group depreciation,impairments and amortisation of US$862 million and joint venture and associatedepreciation and amortisation of US$83 million) for the half year ended 31December 2003. We believe that EBIT and EBITDA provide useful information, butshould not be considered as an indication of, or alternative to, attributableprofit as an indicator of operating performance or as an alternative to cashflow as a measure of liquidity. (4) Available cash flow is operating cash flow including dividends from jointventures and associates and after net interest and tax. (5) For this purpose, net interest includes capitalised interest and excludesthe effect of discounting on provisions and other liabilities, and exchangedifferences arising from net debt. The above financial results are prepared in accordance with UK generallyaccepted accounting principles (GAAP) and are unaudited. Financial results inaccordance with Australian GAAP are provided on page 28. All references to thecorresponding period are to the half year ended 31 December 2003. RESULTS FOR THE HALF YEAR ENDED 31 DECEMBER 2004 Commentary on the Group Interim Results Introduction The record financial result for the half year ended 31 December 2004 is areflection of the continued consistent execution of our strategy. The focus onthe efficient operation of our high quality, diversified asset base, thedevelopment of short and long term growth options and our customer focusedmarketing has enabled us to fully capture the opportunity provided from strongdemand conditions. Attributable profit was US$2.8 billion (excluding exceptionalitems), an increase of 127% on the corresponding period. The commissioning of a number of growth projects in recent years has providedleverage to strong customer demand. Along with operational improvementsresulting from the continued deployment of our Operating Excellence initiatives,these new projects contributed to the achievement of half yearly productionrecords for six major commodities within our portfolio at a time when customerdemand has strengthened considerably. With completion of the fourth processingtrain in the North West Shelf, the commissioning of an additional five projectscommencing production in recent weeks and the approval of two major new projectsduring the current period, our capacity to respond to the growth in demand forraw materials is further enhanced and augurs well for future periods. We currently have ten major projects and four smaller projects in developmentacross a range of commodities, and an additional twelve projects wherefeasibility studies are underway. In total our project pipeline, which includesapproved projects and projects in feasibility, now represents US$10.2 billion ofvalue accretive investment options. Notwithstanding this sizeable plannedinvestment, our strong cash flow allowed us to execute the first stage of ourplanned US$2 billion capital management programme, returning US$1.78 billion toshareholders during the half year, via an off-market share buy-back of BHPBilliton Limited shares. The remaining US$220 million (3.6 US cents per share)will be distributed as part of the interim dividend, which the Board declaredtoday at 13.5 US cents per share. This is an increase of 69% over last year'sinterim dividend and a 42% increase from the dividend declared in August 2004.BHP Billiton intends to continue with its progressive dividend policy using thisrebased dividend level as the starting reference point for future periods. Thisrebasing of the dividend is a sign of the confidence we have in the medium termoutlook and our ability to consistently deliver earnings and cash flow tosupport this higher level of dividend payment. The Income Statement Earnings excluding exceptional items Turnover (including turnover from third party products) was US$15.5 billion, anincrease of 41.6% from US$11.0 billion in the corresponding period. The increasewas primarily due to higher prices for all commodities with base metals, carbonsteel materials, petroleum and coal prices contributing significantly. Sales ofthird party products increased 44.8% to US$4.1 billion. Earnings before interest, tax, depreciation, impairments and amortisation(EBITDA) excluding exceptional items, increased by 66.6% to US$5.2 billion fromUS$3.1 billion in the corresponding period. Earnings before interest andtaxation (EBIT), excluding exceptional items, were US$4.3 billion compared withUS$2.2 billion for the corresponding period. The following table and commentary detail the approximate impact of theprincipal factors that affected earnings before interest and taxation for thecurrent half year compared with the corresponding period were: US$ Million EBIT excluding exceptional items for the half year ended 31 December 2003 2 183 Change in volumes 150 Change in sales prices 3 035 New operations 30 Exchange rates (340) Price-linked costs (235) Costs (255) Inflation on costs (110) Asset sales (45) Ceased and sold operations (15) Exploration (10) Other (130) EBIT excluding exceptional items for the half year ended 31 December 2004 4 258 Volumes Higher sales volumes increased EBIT by US$265 million, primarily fromcopper, aluminium, iron ore, natural gas and manganese ore, partially offsetby lower oil volumes. The net positive impact on EBIT was US$150 million,using prior period margins. The change in volume at current period pricesadded US$490 million to turnover. Prices Higher commodity prices across all products increased EBIT by US$3,035million with copper, petroleum products, energy coal, manganese ore andalloys, metallurgical coal, aluminium, diamonds, iron ore, ferrochrome andnickel prices making significant contributions. New operations New operations increased EBIT by US$30 million due to a full period ofoperation from the Ohanet wet gas development in Algeria which commencedcommercial production in October 2003. Exchange rates Strengthening exchange rates had an overall unfavourable impact on EBIT ofUS$340 million. This was primarily due to stronger A$/US$ and rand/US$average exchange rates on operating costs of US$200 million and anunfavourable impact of US$65 million from the conversion of rand andAustralian dollar denominated net monetary liabilities. The prior periodincluded gains on legacy A$/US$ currency hedging of US$30 million whichexpired in the year ended 30 June 2004. Currency Half year ended Half year ended 31 Dec 2004 30 June 2004 31 Dec 2003 31 Dec 2004 31 Dec 2003 closing closing closing average average Australian dollar 0.73 0.69 0.78 0.69 0.75 South African rand 6.21 7.08 5.65 6.27 6.62 Costs Higher price-linked costs decreased EBIT by US$235 million, mainly due toincreased taxes on petroleum products, higher royalty costs, and higherLME-linked costs. Increased costs of US$255 million were primarily driven by higher operatingand raw material costs, and increased demurrage, stripping and maintenancecosts, partly offset by continued operating cost savings. Rising input costs, principally in South Africa and Australia, increasedcosts by US$110 million. Asset sales The prior period's EBIT was higher by US$45 million due to higher profits onthe sale of non-core assets. Ceased and sold operations The prior period included a favourable impact from ceased and soldoperations on EBIT of US$15 million. Exploration Exploration expense was US$10 million higher than in the prior period. Other Other items totalling US$130 million include the unfavourable impact ofceased production at Boodarie Iron in Western Australia, where operationsare currently being transitioned to care and maintenance. Net interest expense Net interest expense fell from US$294 million to US$259 million, despite higherUS dollar interest rates during the period. This was principally driven by loweraverage debt levels and increased interest income from higher average cashbalances compared to the corresponding period. This was partially offset byhigher expense from discounting of provisions, and lower capitalisation ofinterest as several projects move into production phase. Included in netinterest were exchange losses on net debt of US$69 million, mainly relating tothe translation of rand denominated debt. This compares with losses of US$89million in the corresponding period. Taxation expense The tax charge on earnings was US$1,131 million, representing an effective rateof 28.3%. Excluding the impacts of non tax-effected foreign currencyadjustments, translation of tax balances and other functional currencytranslation adjustments, mainly attributable to the strengthening of both therand and Australian dollar against the US dollar during the period, theeffective rate was 27.3%. When compared to the UK and Australian statutory taxrate (30%), the underlying effective tax rate benefited 4.4% due to therecognition of tax losses (US$175 million) in the US. In addition, investmentincentives and development entitlements were recognised during the period offsetby non-deductible accounting depreciation and amortisation, non-deductibleexpenditures, overseas tax rate differential and other items. Exceptional items Earnings before interest and tax were increased by an exceptional item of US$56million from the completion of the sale in December 2004 of an equityparticipation in the North West Shelf (NWS) Project in Western Australia toChina National Offshore Oil Corporation (CNOOC). Under the agreement, CNOOCpurchased an interest in a new joint venture that has been established withinthe NWS Project to supply LNG to the Guangdong LNG Project in China. CNOOC hasacquired a 5.3% title interest in NWS Project production licences, retentionleases and the exploration permit relating to natural gas, but excluding oil(equivalent to 5.8% of BHP Billiton's share of current remaining proved naturalgas reserves). CNOOC paid each joint venture partner US$59 million, resulting ina profit on sale of US$56 million (no tax effect). CNOOC's rights to process itsgas and associated LPG and condensate through the NWS Project offshore andonshore infrastructure are contained in a separate agreement. The corresponding period included an exceptional gain relating to the settlementof a litigation matter with Dalmine SpA of US$66 million (before tax expense ofUS$18 million) and an exceptional tax benefit of US$78 million relating to theintroduction of the tax consolidation regime in Australia. Earnings per share Basic earnings per share excluding exceptional items were 44.5 US cents pershare compared to 19.5 US cents per share in the corresponding period, anincrease of 128.2%. Basic earnings per share including exceptional items were 45.4 US cents pershare compared to 21.5 US cents per share in the corresponding period, anincrease of 111.2%. Cash Flows Available cash flow after interest and tax increased by 116.2% to US$3.5billion. The key components of this increase were increased cash generated fromoperating activities (mainly due to higher profits), partly offset by increasedtaxation payments. Spending on capital, exploration and investment expenditures totalled US$1,740million for the period. Expenditure on growth projects and investments amountedto US$1,111 million, including US$433 million on petroleum projects and US$678million on minerals projects. Sustaining and maintenance capital expenditure wasUS$430 million. In addition, the current period includes US$1.78 billiondistributed to shareholders as part of the US$2 billion capital managementprogramme. Net debt at 31 December 2004 was US$5.5 billion, an increase of US$0.6 billionfor the period. Net debt at 31 December 2003 was US$6.5 billion. Gearing, whichis the ratio of net debt to net debt plus net assets, was 27.2% at 31 December2004, compared with 32.8% at 31 December 2003. Dividend An interim dividend for the half year ended 31 December 2004 of 13.5 US centsper share will be paid to shareholders on 23 March 2005. This dividend includesUS$220 million (3.6 US cents per share) to complete the US$2 billion capitalmanagement programme announced in August 2004. BHP Billiton intends to continuewith its progressive dividend policy using this rebased dividend level as thestarting reference point for future periods. This rebasing of the dividend isalso a sign of the confidence we have in the ability to consistently deliverearnings and cash flow to support this higher level of dividend payment in theyears ahead. The dividend paid by BHP Billiton Limited will be fully franked for Australiantaxation purposes. Dividends for the BHP Billiton Group are determined anddeclared in US dollars. However, BHP Billiton Limited dividends are mainly paidin Australian dollars and BHP Billiton Plc dividends are mainly paid in poundssterling to shareholders on the UK section of the register and South Africanrand to shareholders on the South African section of the register. The foreigncurrency exchange rates applicable two business days before the declaration ofthe dividend were used for conversion of currencies. These rates are detailed inthe table below. The timetable in respect of this dividend will be: Currency conversion - 14 February 2005 Last day to trade Johannesburg Stock Exchange (JSE) - 25 February 2005 Ex-dividend Australian Stock Exchange (ASX) - 28 February 2005 Ex-dividend Johannesburg Stock Exchange (JSE) - 28 February 2005 Ex-dividend London Stock Exchange (LSE) - 2 March 2005 Record - 4 March 2005 Payment - 23 March 2005 American Depositary Shares (ADSs) each represent two fully paid ordinary sharesand receive dividends accordingly. BHP Billiton Plc shareholders registered on the South African section of theregister will not be able to dematerialise or rematerialise their shareholdings,nor will transfers between the UK register and the South African register bepermitted, between the dates of 28 February 2005 and 4 March 2005. The following table details the currency exchange rates applicable for thedividend: Dividend 13.5 US cents Exchange Dividend per ordinary Rate share in local currency Australian cents 0.787068 17.152266 British pence 1.884750 7.162754 South African cents 6.059289 81.800402 New Zealand cents 0.716600 18.838962 Liquidity and Capital Management In October 2004, Moody's Investor Services upgraded BHP Billiton's credit ratingfrom A2 to A1, reflecting the Group's strengthened financial risk profile. On 23 November 2004, the first phase of a US$2 billion capital managementprogramme was completed through an off-market share buy-back of 180.72 millionBHP Billiton Limited shares. The total amount of capital repurchased was US$1.78billion, or 2.9% of the issued BHP Billiton Group share capital. The buy-backprice of A$12.57 per share, represented a discount of 12% to the volume weightedaverage price of BHP Billiton Limited shares over the five days up to andincluding buy-back closing date. The remaining US$220 million will be returnedto shareholders as part of the interim dividend declared today. Portfolio Management As previously noted, we sold an equity participation in the North West ShelfProject to China National Offshore Oil Corporation for proceeds of US$59million. In addition, we announced the sale of our interests in the Laminariaand Corallina Oil Fields (located in the Timor Sea) and our equity interest inIntegris Metals (US) during the current half year. We have also sold 50% of ourshareholding in Acerinox S.A. These transactions have been completed subsequentto 31 December 2004 and will generate proceeds of US$130 million, US$205 millionand US$56 million, respectively. Corporate Governance The Group announced the appointment of Mr Carlos A Cordeiro to the BHP BillitonBoard effective 3 February 2005. IFRS Implementation The Group will commence reporting financial information in accordance withInternational Financial Reporting Standards (IFRS) for financial periodsbeginning on or after 1 July 2005. Selected financial information for the halfyear to 31 December 2004 prepared in accordance with IFRS together with areconciliation from IFRS to UK Generally Accepted Accounting Principles, andexplanatory notes, are expected to be released in the second half of this fiscalyear as unaudited supplementary information. Outlook While the global economy slowed during the half year, GDP growth for calendar2004 was one of the strongest in the last three decades. The real GDP growthrate slowed in the September quarter - particularly in Japan, Germany, Franceand the UK - and the rate of growth in OECD industrial production has continuedto decelerate. Although the reasons for the slowdown are varied and reflect theparticular circumstances for each economy, some common factors have been therise in oil prices, a tightening in economic policies and a slowing in exportgrowth. With the Chinese government taking steps to control growth in certainareas of its economy during 2004, growth rates in China also slowed in thesecond half. Overall, while the pace of global economic growth may have slowed in recentmonths, we remain of the view that the cycle is extendable and the globaleconomy will continue to experience an above trend growth rate in the comingyear. In particular, we expect that China will remain a large and sustainableconsumer of raw materials and resources as the government remains committed tosustainable long-term development. For some commodities, inventory levels arealready at or close to historically low levels. Given this, together withcontinued growing demand, it is likely that for many commodities, supply willcontinue to fall short of demand over the coming year. Over time we expect thissituation will come into balance with the introduction of new supply, eitherthrough new projects or the expansion of existing operations. We will remain focussed on our strategy of maximising the operating performanceof our world class assets, reducing costs and improving efficiencies andexercising the value accretive expansion options within our portfolio. Ourrecent financial performance demonstrates how this has positioned us to takeadvantage of the current strong demand for raw materials. The cash generatingability of our existing assets allows us to continue with this approach whilstremaining alert for opportunistic, value adding acquisitions. We also believe itis critical that we continue to generate options to participate in value-addedopportunities to expand our activities as the prospects for demand growth becomeapparent. To this end, it is possible that we will enter new production regions,new markets with new customers and into new products where these add value andare in line with our strategic objectives. CUSTOMER SECTOR GROUP SUMMARY The following table provides a summary of the Customer Sector Group results forthe half year ended 31 December 2004 and the corresponding period (beforeexceptional items). Half year ended 31 December (US$ Million) Turnover (1) EBIT (1) 2004 2003 Change 2004 2003 Change Petroleum 3 171 2 245 41.2% 909 602 51.0% Aluminium 2 615 2 023 29.3% 458 307 49.2% Base Metals 2 353 1 351 74.2% 1 041 333 212.6% Carbon Steel Materials 3 229 2 206 46.4% 1 007 505 99.4% Diamonds and Specialty Products 1 136 758 49.9% 317 195 62.6% Energy Coal 1 640 1 242 32.0% 308 85 262.4% Stainless Steel Materials 1 013 744 36.2% 340 193 76.2% Group and unallocated items (2) 411 429 (4.2)% (122) (37) N/A Less: inter-segment turnover (47) (35) N/A BHP Billiton Group 15 521 10 963 41.6% 4 258 2 183 95.1% (1) Turnover and EBIT include trading activities comprising the sale of thirdparty product. (2) Includes consolidation adjustments, unallocated items and external sales ofthe Group's freight, transport and logistics operations. Petroleum EBIT was US$909 million, an increase of US$307 million or 51% compared with thecorresponding period. The increase was a result of higher realised prices, wherethe average realised oil price per barrel was US$44.85 compared to US$29.40, andthe average realised natural gas price per thousand standard cubic feet wasUS$2.94 compared with US$2.37 in the corresponding period. In addition, lowerexploration expenditure and a smaller loss on third party trading activitiesalso had a favourable impact. The increase was offset by the unfavourable effectof increased taxes on petroleum products, lower production volumes, with totalproduction for the period of 57.4 million barrels of oil equivalent, comparedwith 62.4 million barrels of oil equivalent in the corresponding period, and thetranslation impact of a stronger A$/US$ exchange rate on net monetary assets andliabilities. Exploration expenditure charged to profit was US$55 million representing acapitalisation rate of 59.9% compared to a charge to profit of US$77 million anda capitalisation rate of 49.7% in the corresponding period, and reflects timingof exploration and appraisal activities. Aluminium EBIT was US$458 million, an increase of US$151 million or 49%, compared with thecorresponding period. The increase was mainly due to higher realised prices foraluminium and alumina, and increased aluminium sales volumes. Average LMEaluminium prices increased to US$1,764 per tonne, compared with US$1,474 pertonne in the corresponding period. Higher aluminium sales volumes resulted fromthe full commissioning of Mozal 2 (Mozambique) and Hillside 3 (South Africa) inAugust 2003 and December 2003 respectively, and from the return to fullproduction at the Alumar smelter following the July 2003 power supply failure. This was partially offset by a once-off US$36 million charge for the agreedcancellation of a discounted aluminium supply agreement, the unfavourable impacton operating costs of strengthening A$/US$, rand/US$ and Brazilian real/US$average exchange rates, higher LME price-linked costs, increased productioninput costs and pot relining activity. Base Metals EBIT was US$1,041 million, an increase of US$708 million or 213% compared withthe corresponding period. This increase was mainly attributable to higheraverage realised prices for copper of US$1.46/lb, compared with US$0.96/lb inthe corresponding period, higher copper sales volumes as well as higher averagerealised prices for silver, lead and zinc. Record silver and lead production wasachieved for the current period and was a result of the continuation of theCannington (Australia) de-bottlenecking programme. These factors were partiallyoffset by higher input costs as well as the unfavourable translation impact onoperating costs and net monetary assets and liabilities of stronger A$/US$ andChilean peso/US$ average and closing exchange rates. Carbon Steel Materials EBIT was US$1,007 million, an increase of US$502 million or 99% compared withthe corresponding period. This increase was mainly attributable to strongercommodity prices for all products combined with record production and salesvolumes for iron ore and manganese ore operations. Operating cost performance atAustralian and South African operations was unfavourably impacted by stronger A$/US$ and rand/US$ average exchange rates and inflationary pressures comparedwith the corresponding period. Queensland Coal operations (Australia) incurredhigher price-linked royalty costs, stripping costs linked to expansion projectsand increased demurrage costs. Western Australian iron ore operations(Australia) also incurred higher demurrage costs as well as increaseddepreciation charges for recently commissioned expansion projects offset byhigher capitalisation of stripping costs. Compared with the prior period, ceasedproduction at Boodarie Iron in Western Australia also had an unfavourable impacton EBIT. Operations at Boodarie Iron are currently being transitioned to careand maintenance status. BHP Billiton has settled commercial terms for approximately three quarters ofits annually priced metallurgical coal contracts with prices increasing by anaverage of 120% across all markets. For 70% of our contracts by volume theincrease is effective from 1 April 2005. Diamonds and Specialty Products EBIT was US$317 million, an increase of US$122 million or 63% compared with thecorresponding period. The increase was mainly attributable to higher realisedprices and sales volumes for diamonds and Integris Metals (US) products. Thesefactors were partially offset by higher price-linked costs at Integris, theunfavourable impact of stronger Canadian$/US$ and rand/US$ average exchangerates on operating costs, and higher diamond royalties arising from increasedprofits. Additionally the half year ended 31 December 2003 included profitsrealised on the sale of a non-core royalty interest (US$37 million). The second half of the 30 June 2005 financial year will be negatively impactedby the processing of lower grade, lower value material at Ekati (Canada) and thecessation of earnings from Integris Metals following its sale in January 2005. Energy Coal EBIT was US$308 million, an increase of US$223 million or 262% compared with thecorresponding period. The increase was mainly due to higher export pricesresulting from continued strong demand in both the Atlantic and Pacific markets,increased export sales volumes from Hunter Valley Coal (Australia) following thesuccessful ramp-up of the Mt Arthur North project, and cost efficiencies gainedat Hunter Valley Coal from increased volumes. This was partially offset by theunfavourable impact on net operating costs of a stronger rand/US$ averageexchange rate, higher unit costs at Ingwe (South Africa) reflecting higheroperating costs, and South African inflationary pressures. Stainless Steel Materials EBIT was US$340 million, an increase of US$147 million or 76% compared with thecorresponding period. The increase was mainly driven by higher realised pricesfor nickel, ferrochrome and cobalt. Nickel prices averaged US$6.38/lb in thecurrent period, up 35% from US$4.72/lb in the corresponding period. This waspartially offset by the impact of stronger currencies on operating costs andtranslation of net monetary assets and liabilities, higher cost of productioninputs for chrome operations in South Africa and increased shipping costs. Group and Unallocated Items Corporate operating costs were US$135 million compared to US$110 million in thecorresponding period. This was primarily due to an increase of US$27 millionassociated with costs of employee share awards in the current period. Other items in the corresponding period included gains on legacy A$/US$ currencyhedging of US$30 million and benefits from one-off items. INTERIM FINANCIAL REPORT CONTENTS INDEPENDENT REVIEW REPORT OF THE AUDITORTO BHP BILLITON PLC - 13 CONSOLIDATED PROFIT AND LOSS ACCOUNT - 14 CONSOLIDATED STATEMENT OF TOTALRECOGNISED GAINS AND LOSSES - 15 CONSOLIDATED BALANCE SHEET - 16 CONSOLIDATED STATEMENT OF CASH FLOWS - 17 NOTES TO INTERIM FINANCIAL INFORMATION - 19 The interim financial information set out on pages 14 to 27 has been prepared onthe same basis and using the same accounting policies as were applied in drawingup the financial information contained in the accounts of BHP Billiton Plc forthe year ended 30 June 2004. The interim financial information should be read inconjunction with the accounts of BHP Billiton Plc for the year ended 30 June2004 and does not include all information normally contained within the notes toannual accounts. Where applicable, comparatives have been adjusted to disclosethem on the same basis as current period figures. The financial information for the half years ended 31 December 2004 and 31December 2003 has been subject to review by the auditor but is unaudited. In theopinion of the Directors, the financial information for these periods presentsfairly the financial position, results of operations and cash flows for theperiods in conformity with UK generally accepted accounting principles (GAAP). The financial information for the year ended 30 June 2004 has been derived fromthe audited financial statements of BHP Billiton Plc for that period as filedwith the UK Registrar of Companies and does not constitute the statutoryaccounts of BHP Billiton Plc for that period. The auditors' report on thestatutory accounts for the year ended 30 June 2004 was unqualified and did notcontain statements under Section 237 (2) (regarding adequacy of accountingrecords and returns) or under Section 237 (3) (provision of necessaryinformation and explanations) of the United Kingdom Companies Act 1985. Impact of International Financial Reporting Standards For reporting periods beginning on or after 1 January 2005, the Group mustcomply with International Financial Reporting Standards (IFRS) as issued by theInternational Accounting Standards Board. The Group's DLC structure results intwo parent entities with their own statutory reporting obligations, one inAustralia and the other in the UK. While Australia and the UK are currentlymoving to an IFRS-based financial reporting regime in the same timeframe, thisstructure creates unique IFRS implementation issues, for example: i. the Australian Accounting Standards Board has approved IFRS-based standards which mandate particular policies that are only optional in the UK; and ii. there is a risk that further changes in IFRS prior to 30 June 2006 attract inconsistent early adoption rules between the two jurisdictions. Accordingly, significant uncertainty remains as to the likely impact of IFRS onthe Group's financial statements. Management of IFRS implementation The Group has established a formal project, monitored by a steering committee,to manage the transition to IFRS reporting. Regular updates are also provided tothe Board Risk Management and Audit Committee. The implementation projectconsists of three phases: (i) Scoping and impact analysis phase - Project scoping and impact analysis wassubstantially complete by 30 June 2004 and produced a high-level view ofpotential differences to existing accounting and reporting policies andconsequential changes to information systems and business processes. Management of IFRS implementation continued (ii) Evaluation and design phase - This phase involves specification of changesrequired to existing accounting policies, information systems and businessprocesses, together with an analysis of policy alternatives allowed under IFRSand development of draft IFRS financial statement content. The evaluation anddesign phase was well advanced at 31 December 2004 and the Group will continueto evaluate the impact of developments in IFRS through to implementation. (iii) Implementation and review phase - The implementation and review phase isin progress and includes substantial training programmes across the Group'sfinance staff, execution of changes to information systems and businessprocesses and completing formal authorisation processes to approve recommendedaccounting policy changes. It will culminate in the collection of financialinformation necessary to compile IFRS-compliant financial statements, embeddingof IFRS in business processes, elimination of any unnecessary data collectionprocesses and Board approval of IFRS financial statements. Implementation alsoinvolves delivery of further training to staff as revised systems begin to takeeffect. This phase commenced at the beginning of the 2004 calendar year and isnot expected to be complete until 30 June 2005. Key differences in accounting policies The interim financial information has been prepared in accordance with UKaccounting standards and other UK financial reporting requirements (UK GAAP).The differences between UK GAAP and IFRS identified to date as potentiallyhaving a significant effect on the Group's financial performance and financialposition are summarised below. The summary should not be taken as an exhaustivelist of all the differences (significant or not) between UK GAAP and IFRS. The Group has not quantified the effects of the differences described below. Theregulatory bodies that promulgate UK GAAP and IFRS have significant ongoingprojects that could affect the ultimate differences between UK GAAP and IFRS andtheir impact on the Group's financial statements in future years. The futureimpact of IFRS will also depend on the particular circumstances prevailing inthose years. The key potential implications of the conversion to IFRS on the Group identifiedto date are as follows: • all derivative financial instruments must be recognised in the balance sheet and measured at fair value. Application of hedge accounting will only be available where specific designation and effectiveness criteria are satisfied. These changes may impact the manner in which the Group executes risk mitigation strategies through derivatives and their consequent accounting. Where hedge accounting cannot be achieved for ongoing risk mitigation activity, net profit will be directly affected by changes in market values of derivative financial instruments. • income tax will be calculated using the 'balance sheet liability' approach, which recognises deferred tax assets and liabilities by reference to differences between the accounting and tax values of balance sheet items, rather than accounting and tax values of items recognised in profit and loss. This approach has the potential to give rise to a wider range of deferred tax assets and liabilities and an increase in the volatility of deferred tax balances brought about by foreign exchange rate movements. In general, a weakening of other currencies relative to the Group's US dollar functional currency will reduce the value of future tax deductions attached to existing assets and liabilities that are denominated for tax purposes in those other currencies. Such movements will give rise to foreign exchange losses recognised in income tax expense. • the cost of employee compensation provided in the form of equity-based compensation (including shares and options) will be measured based on the fair value of those instruments, rather than their intrinsic value, and accrued over the period of employee service. This is likely to change the total amount of compensation cost and the pattern of cost recognition. Relative to the Group's existing accounting policy, the cost of employee compensation provided in the form of shares and options will be lower and higher respectively, and the cost will be spread over a longer recognition period. • defined benefit pension plan and medical benefit plan arrangements will result in the recognition of net assets or liabilities directly based on the underlying obligations and assets of those plans. The recognised net asset or liability will be immediately subject to changes in the market value of plan assets and changes in the accumulated benefits of employees that may be more volatile than changes in assets and liabilities currently recognised under Statement of Standard Accounting Practice (SSAP) 24. Alternative methods of recognising this volatility will be available, including direct recognition in profit and loss, progressive recognition using a 'corridor' approach, or recognition directly in equity. The Group intends to adopt the last of these options, which will result in most sources of volatility being recognised directly in equity rather than through profit and loss. INDEPENDENT REVIEW REPORT OF THE AUDITOR TO BHP BILLITON PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 31 December 2004 set out on pages 14 to 27 and we have readthe other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the United Kingdom Financial Services Authority. Our review has beenundertaken so that we might state to the Company those matters we are requiredto state to it in this report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company for our review work, for this report, or for the conclusions we havereached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the United Kingdom Financial Services Authority which require that theaccounting policies and presentation applied to the interim figures should beconsistent with those applied in preparing the preceding annual accounts exceptwhere they are to be changed in the next annual accounts, in which case anychanges, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: "Review of Interim Financial Information" issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data and, based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed and excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. A review is substantiallyless in scope than an audit performed in accordance with United Kingdom AuditingStandards and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion 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 2004. KPMG Audit PlcChartered AccountantsLondon, 16 February 2005 Consolidated Profit and Loss Accountfor the half year ended 31 December 2004 Half year ended Half year ended Year ended 31 December 2004 31 December 2003 30 June 2004 Excluding Exceptional Excluding Exceptional Total Excluding Exceptional Total exceptional items Total exceptional items US$M exceptional items US$M Notes items (Note 1) US$M items (Note 1) items (Note 1) US$M US$M US$M US$M US$M US$M Turnover (including share of joint ventures) Group 11 454 - 11 454 8 155 - 8 155 18 283 - 18 283 production Third party 2 4 067 - 4 067 2 808 - 2 808 6 660 - 6 660 products 2,3 15 521 - 15 521 10 963 - 10 963 24 943 - 24 943 less Share (1 305) - (1 305) (1 016) - (1 016) (2 056) - (2 056) of joint ventures' turnover included above Group 14 216 - 14 216 9 947 - 9 947 22 887 - 22 887 turnover Net (10 375) -(10 375) (8 014) 66 (7 948) (17 960) 66 (17 894) operating costs Group 3 841 - 3 841 1 933 66 1 999 4 927 66 4 993 operating profit Share of 388 - 388 170 - 170 425 - 425 operating profit of joint ventures Operating 4 229 - 4 229 2 103 66 2 169 5 352 66 5 418 profit (including share of profit of joint ventures) Comprising: Group 4 198 - 4 198 2 097 66 2 163 5 319 66 5 385 production Third party 2 31 - 31 6 - 6 33 - 33 products 4 229 - 4 229 2 103 66 2 169 5 352 66 5 418 Income from 11 - 11 18 - 18 35 - 35 other fixed asset investments Profit on 18 56 74 62 - 62 95 - 95 sale of fixed assets Profit on - - - - - - 6 - 6 sale of operations Loss on - - - - - - - (534) (534) termination of operations Profit/(loss) 4 258 56 4 314 2 183 66 2 249 5 488 (468) 5 020 before net interest and similar items payable and taxation Net interest and similar items payable Group 4 (219) - (219) (242) - (242) (407) - (407) Joint 4 (40) - (40) (52) - (52) (95) - (95) ventures Profit/(loss)2,3 3 999 56 4 055 1 889 66 1 955 4 986 (468) 4 518 before taxation Taxation (1 131) - (1 131) (658) 60 (598) (1 379) 337 (1 042) Profit/(loss) 2 868 56 2 924 1 231 126 1 357 3 607 (131) 3 476 after taxation Equity (111) - (111) (18) - (18) (97) - (97) minority interests Profit/(loss) 2 757 56 2 813 1 213 126 1 339 3 510 (131) 3 379 for the financial period (attributable profit) Dividends (817) - (817) (497) - (497) (1 617) - (1 617) to shareholders Retained 1 940 56 1 996 716 126 842 1 893 (131) 1 762 profit/(loss) for the financial period Earnings 6 44.5 0.9 45.4 19.5 2.0 21.5 56.4 (2.1) 54.3 per ordinary share (basic) (US cents) Earnings 6 44.3 0.9 45.2 19.5 2.0 21.5 56.2 (2.1) 54.1 per ordinary share (diluted) (US cents) Dividend 13.5 8.0 26.0 per ordinary share (US cents) The accompanying notes form part of these interim financial statements. Consolidated Statement of Total Recognised Gains and Losses for the half year ended 31 December 2004 Half year ended Half year ended Year ended 31 December 2004 31 December 2003 30 June 2004 US$M US$M US$M Attributable profit for the financial period 2 813 1 339 3 379 Exchange gains on foreign currency net investments 42 47 48 Total recognised gains for the financial period 2 855 1 386 3 427 Prior period adjustment arising from the change in - 84 84 accounting policy Total recognised gains since last annual report 2 855 1 470 3 511 The accompanying notes form part of these interim financial statements. Consolidated Balance Sheet as at 31 December 2004 31 December 2004 31 December 2003 30 June 2004 Notes US$M US$M US$M Fixed assets Intangible assets Goodwill 33 35 34 33 35 34Related Shares:
BHP Group