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Group financial performance

The 2008 results were achieved against the background of the crisis that enveloped the world’s financial markets in the second half of the year, which resulted in a sharp decrease in commodity prices

Financial review of Group results*

Group operating profit was $10,085 million, with operating profit from core operations of $9,765 million, 10% higher than 2007. Operating profit was driven by higher prices realised in the year, particularly for coal, iron ore, manganese ore and alloy, platinum, rhodium and diamonds. Higher sales volumes of coal and iron ore also contributed, as did the favourable exchange rate of the South African rand against the US dollar. Coal and Ferrous Metals saw very significant increases in operating profit, to record levels, on the back of stronger prices, increased volumes and operational efficiencies. Operating profit from Platinum and Base Metals was lower than 2007. At Platinum, this was due to a decrease in metal sales and higher key input costs, which were only partly offset by the higher realised platinum and rhodium prices. The Base Metals results were impacted by sharply lower base metals prices, particularly in the fourth quarter as the London Metal Exchange (LME) copper price fell to 132 c/lb at the end of December. The impact of prices, as well as lower overall production and sales volumes and increased input costs, resulted in lower operating profit from the Base Metals division.

Group underlying earnings were $5,237 million, 4% lower than the prior year on a continuing basis. Underlying earnings from core operations were in line with 2007. Underlying earnings reflect the operational results discussed above, an increase in net finance costs due to higher interest as a result of the increased debt levels, as well as an increase in the effective tax rate.

Group underlying earnings per share were $4.36 compared with $4.18 in 2007 on a continuing basis, reflecting the lower weighted average number of shares as a result of the share buyback programme.

Underlying earnings

$ million
Year ended
31 Dec 2008
Year ended
31 Dec 2007
Profit for the financial year attributable to equity shareholders
of the Company – continuing operations
5,215 5,294
Operating special items including associates 477 713
Operating remeasurements including associates 880 (2)
Net profit on disposals including associates (1,027) (484)
Financing remeasurements including associates:    
Exchange (gain)/loss on De Beers preference shares (28) 3
Unrealised net gains on non-hedge derivatives related to net debt (8) (28)
Tax remeasurements 153
Tax on special items and remeasurements including associates (264) 15
Minority interests on special items and remeasurements
including associates

(161)

(34)
Underlying earnings – continuing operations 5,237 5,477
Underlying earnings – discontinued operations 284
Underlying earnings – total Group 5,237 5,761
Underlying earnings per share ($) – continuing operations 4.36 4.18
Underlying earnings per share ($) – discontinued operations 0.22
Underlying earnings per share ($) – total Group 4.36 4.40

Profit for the year after special items and remeasurements decreased by 1% to $5,215 million compared with $5,294 million in the prior year. The decrease reflects the results discussed above and in the business unit overviews, in particular a reduction in the operational results of non-core businesses, as well as a charge of $880 million for operating remeasurements including a $760 million loss on non-hedge derivatives. This is partly offset by an increase in net profit on disposals, lower operating special item charges, particularly in the Group’s associates, and a net tax credit on special items and remeasurements compared with a charge in 2007.

The Group’s results are influenced by a variety of currencies owing to the geographic diversity of the Group. In 2008, there was a positive exchange variance in underlying earnings of $725 million. Results benefited from the weaker South African rand against the US dollar with an average exchange rate of R8.27 compared with R7.05 in 2007 as well as from the slightly weaker Australian dollar and Chilean peso, although these were partly offset by the overall strengthening of the Brazilian real over the year. There was a positive impact on underlying earnings from increased prices amounting to $1,311 million, reflecting better prices for coal, iron ore, manganese ore and alloys, platinum, rhodium and a range of Tarmac’s products, partly offset by significantly lower base metals prices.

Summary income statement

$ million
Year ended
31 Dec 2008
Year ended
31 Dec 2007
Operating profit before special items and remeasurements –
continuing operations
7,981 8,518
Operating special items (352) (251)
Operating remeasurements (779) 5
Operating profit from subsidiaries and joint ventures 6,850 8,272
Net profit on disposals 1,009 460
Share of net income from associates – continuing operations(1) 1,113 197
Total profit from operations and associates 8,972 8,929
Net finance costs before remeasurements (452) (137)
Financing remeasurements 51 29
Profit before tax 8,571 8,821
Income tax expense (2,451) (2,693)
Profit for the financial year – continuing operations 6,120 6,128
Minority interests (905) (834)
Profit for the financial year attributable to equity shareholders –
continuing operations
5,215 5,294
Profit for the financial year attributable to equity shareholders –
discontinued operations
2,010
Profit for the financial year attributable to equity shareholders –
total Group
5,215 7,304
Basic earnings per share ($) – continuing operations 4.34 4.04
Basic earnings per share ($) – discontinued operations 1.54
Basic earnings per share ($) – total Group 4.34 5.58
Group operating profit including associates before special items
and remeasurements – continuing operations
10,085 9,590
Group operating profit including associates before special items
and remeasurements – discontinued operations
526
Group operating profit including associates before special items
and remeasurements – total Group
10,085 10,116
(1)
Operating profit from associates before special items and remeasurements – continuing operations 2,104 1,072
  Operating special items and remeasurements(2) (226) (465)
  Net profit on disposals(2) 18 24
  Net finance costs (before remeasurements) (147) (85)
  Financing remeasurements(2) (15) (4)
  Income tax expense (after special items and remeasurements) (606) (303)
  Minority interests (after special items and remeasurements) (15) (42)
  Share of net income from associates – continuing operations 1,113 197
(2) See note 7 to the Financial statements.
Special items and remeasurements
 
  Year ended 31 Dec 2008 Year ended 31 Dec 2007

$ million
Excluding
associates

Associates

Total
Excluding
associates

Associates

Total
Operating special items (352) (125) (477) (251) (462) (713)
Operating remeasurements (779) (101) (880) 5 (3) 2
Operating special items and remeasurements (1,131) (226) (1,357) (246) (465) (711)
 

Operating special items and remeasurements, including associates, amounted to a charge of $1,357 million. Included in operating special items of $477 million was $393 million in respect of impairments and restructurings, including a $140 million impairment relating to Base Metals assets, $91 million impairment and restructuring relating to Tarmac assets and $79 million relating to the Group’s share of the De Beers impairment. Also included in special items and remeasurements were one-off costs associated with ‘One Anglo’ initiatives of $72 million. Operating remeasurements of $880 million principally related to net losses on non-hedge capital expenditure derivatives held by Anglo Ferrous Brazil and Los Bronces and an unrealised loss on an embedded derivative at Minera Loma de Níquel.

Net profit on disposals of $1,027 million which, including associates, was $543 million higher than 2007, includes the net profit of $551 million relating to the sale of the Group’s interest in China Shenhua Energy, $142 million relating to the disposal of the interest in Minera Santa Rosa SCM and $101 million relating to the disposal of Northam Platinum Limited.

Financing remeasurements, including associates, are made up of an unrealised net gain of $8 million on non-hedge derivatives and a $28 million foreign exchange gain on retranslating De Beers US dollar preference shares held by a rand denominated entity.

Tax remeasurements, which amounted to a charge of $153 million, related to foreign currency translation of deferred tax balances.

Net finance costs

Net finance costs from continuing operations, excluding net remeasurement gain of $51 million (2007: $29 million), increased to $452 million (2007: $137 million). The increase reflects higher interest costs due to the increase in debt and higher net foreign exchange losses on net debt monetary items, principally at Anglo Ferrous Brazil and Base Metals, partly offset by higher interest capitalised.

Taxation

IAS 1 Presentation of Financial Statements requires income from associates to be presented net of tax on the face of the income statement. Associates’ tax is therefore not included within the Group’s total tax charge on the face of the income statement. Associates’ tax before special items and remeasurements included within ‘Share of net income from associates’ for the year ended 31 December 2008 was $623 million (2007: $305 million).

The effective rate of tax before special items and remeasurements, including share of associates’ tax, on a continuing basis was 33.4%. This was an increase from the equivalent effective rate of 31.8% in the year ended 31 December 2007. The main reasons for this net increase are tax losses not recognised for deferred tax purposes and changes in the geographic mix of profits around the Group, partially offset by changes in statutory tax rates and the impact of prior year adjustments. In addition, the 2007 rate benefited from the availability of enhanced tax depreciation on certain assets.

 
 
  Year ended 31 Dec 2008 Year ended 31 Dec 2007


$ million (unless
otherwise stated)
Before special
items and
remeasure-
ments
Associates’
tax and
minority
interests


Including
associates
Before special
items and
remeasure-
ments
Associates’
tax and
minority
interests


Including
associates
Profit before tax 8,832 654 9,486 9,021 347 9,368
Tax (2,545) (623) (3,168) (2,676) (305) (2,981)
Profit for the
financial year
6,287 31 6,318 6,345 42 6,387
Effective tax
rate including
associates (%)
    33.4     31.8

Discontinued operations

On 2 July 2007, the Paper and Packaging business, ‘Mondi’, was demerged from the Group by way of a dividend in specie paid to shareholders.

On 2 October 2007, the Group sold 67.1 million shares in AngloGold Ashanti Limited which reduced the Group’s shareholding from 41.6% to 17.3%. The Group’s representation on the company’s board was also withdrawn at this time. The remaining investment is accounted for as a financial asset investment.

Both of these operations are presented as discontinued.

Refer to note 35 to the Financial statements for financial information on discontinued operations.

Balance sheet

Equity attributable to equity shareholders of the Company was $20,221 million compared with $22,461 million at 31 December 2007. This decrease resulted primarily from the balance sheet impact of weakening exchange rates relative to the US dollar (in particular the rand), partly offset by the consolidation of the Amapá iron ore system and additional effective interest in the Minas-Rio iron ore project, the proportionate consolidation of the Foxleigh joint venture and the additional interest acquired in Anglo Platinum.

The $4 billion share buyback programme announced in August 2007 was suspended, with around $1.7 billion of shares having been repurchased.

Cash flow

Net cash inflows from operating activities were $8,065 million compared with $6,800 million in 2007. EBITDA was $11,847 million, an increase of 6% from $11,171 million in 2007.

Acquisition expenditure accounted for an outflow (net of cash acquired) of $7,907 million (including settlement of related derivative instruments) compared with $1,934 million in 2007. This included $5,282 million in respect of the Group’s acquisition of the controlling interest and subsequent acquisition of 97% of the remaining minorities in Anglo Ferrous Brazil SA and $1,113 million in respect of the Group’s investment in ordinary shares in Anglo Platinum Limited.

Proceeds from disposals totalled $1,524 million, including net cash inflows on the sale of Namakwa Sands mineral sands operation to Exxaro of $311 million, $704 million from the sale of the Group’s holding in China Shenhua Energy, $155 million from the sale of Tarmac Iberia and $205 million on the sale of Northam Platinum Limited by Anglo Platinum.

Purchases of tangible assets amounted to $5,146 million, an increase of $1,215 million. Planned increases in capital expenditure by Platinum, Base Metals, Ferrous Metals and Industrial Minerals were partly offset by lower expenditure by Coal.

Net cash received from financing activities was $3,542 million compared with net cash used in 2007 of $5,661 million. This primarily arose from the receipt of $6,616 million of additional borrowings (an increase in the year of $3,495 million) together with a $5,507 million reduction in cash outflow in respect of share purchases.

Analysis of depreciation and amortisation by business segment (subsidiaries and joint ventures)

$ million
Year ended
31 Dec 2008
Year ended
31 Dec 2007
Platinum 507 455
Base Metals 340 344
Ferrous Metals 87 100
Coal 293 221
Industrial Minerals 259 258
Other 23 20
  1,509 1,398
Analysis of capital expenditure on a cash flow basis by business segment (subsidiaries and joint ventures)

$ million
Year ended
31 Dec 2008
Year ended
31 Dec 2007
Platinum 1,563 1,479
Base Metals 1,494 610
Ferrous Metals 831 470
Coal 933 1,052
Industrial Minerals 301 274
Other 24 46
Purchase of tangible
assets
5,146 3,931
Investment in
biological assets
1 1
  5,147 3,932

Liquidity and funding

Net debt, excluding hedges but including net debt of disposal groups (net cash of $8 million), was $11,043 million, an increase of $5,804 million from 31 December 2007. The increase reflects planned capital expenditure on projects in Platinum, Base Metals, Ferrous Metals and Industrial Minerals and debt taken on to fund the acquisition of the controlling interest and subsequent acquisition of 97% of the remaining minorities in Anglo Ferrous Brazil SA and to increase the stake in Anglo Platinum Limited. This was partly offset by operating cash inflows and $1.5 billion proceeds from disposals.

Net debt at 31 December 2008 comprised $13,960 million of debt, partly offset by $2,744 million of cash and cash equivalents (net of bank overdrafts) and $173 million current financial asset investments. Net debt to total capital at 31 December 2008 was 37.8%, compared with 20.0% at 31 December 2007.

Over the last 12 months, Anglo American has issued medium and long term debt in the euro and sterling bond markets, in addition to arranging new bank financing in both Europe and South Africa.

At 31 December 2008, Anglo American had undrawn bank facilities of $6.1 billion, cash deposits of $2.7 billion and commercial paper maturing throughout 2009 of $1.1 billion. Anglo American’s only significant debt repayment in the next year is a $3 billion revolving bank facility (of which $1.1 billion was drawn at 31 December 2008) which matures in December 2009. In addition, a £300 million (approximately $500 million) euro bond matures in December 2010.

With respect to the $3 billion facility, the intention is to refinance part or all of the facility, subject to requirements, taking into consideration proceeds from disposal of assets and cash flow from operations, using a variety of sources which may include the issue of public bonds in the European and US markets and new bank facilities.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance and the refinancing of the facilities above, show that the Group will be able to operate within the level of its current facilities.

The Group’s approach to liquidity and counterparty risk is discussed within Principal risks and uncertainties.

Weighted average number of shares

The weighted average number of shares used to determine earnings per share in 2008 was 1,202 million compared with 1,309 million in 2007. This reduction reflects the effect of the share buyback programme and the share consolidation following the demerger of the Paper and Packaging business in July 2007.

Dividends

The Board has decided to suspend dividend payments.

Analysis of dividends
US cents per share 2008 2007
Interim dividend 44 38
Recommended final
dividend
86
Total dividends 44 124

Return on capital employed (ROCE)

ROCE in 2008 was 36.8% compared with 37.8% (on a total Group basis) in 2007. The decrease was mainly due to the operating results discussed in this Financial review of Group results and in the business unit overviews.


*
Throughout the financial review, Group results are presented on a continuing basis unless otherwise stated and therefore exclude the results of Mondi and AngloGold Ashanti in 2007.
Net debt to total capital is calculated as net debt divided by total capital less investments in associates. Total capital is net assets excluding net debt.

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