Anglo American Annual Report 2012

OTHER INFORMATIONRECONCILIATION OF DE BEERS’ REPORTED EARNINGS TO THE AMOUNTSINCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2012On 16 August 2012 the Group acquired an additional 40% interest in De Beers, increasing its shareholding to 85%, and has consolidated 100% of the assetsand liabilities of De Beers from this date. In accordance with IFRS the Group is required to fair value 100% of the assets and liabilities acquired based on thepurchase consideration for the 40% acquired. As a result the Group has:• Recognised a fair value uplift of $2,017 million relating to its existing 45% shareholding, with a corresponding special item (remeasurement) gain in theincome statement. The additional depreciation arising as a result of the fair value uplifts on the Group’s existing 45% shareholding has also been recognisedas a special item (remeasurement) and amounted to $41 million in 2012 and is estimated to be $125 million in 2013.• Recognised fair value uplifts associated with the additional 55% to be consolidated, including the Government of Botswana’s 15% non-controlling interest.The additional depreciation and amortisation charge reduced operating profit by $50 million in 2012 and is estimated to be $150 million in 2013. Theadditional depreciation and amortisation charge reduced underlying earnings by $32 million in 2012 and is estimated to reduce underlying earnings by$100 million in 2013.The following tables reconcile the earnings and capital expenditure of De Beers to the amounts included in the Group’s Consolidated financial statements andillustrate the earnings impact of the requirement to fair value assets and liabilities acquired.De Beers(100%)2012 2011AngloAmericanshare (1)De Beers(100%)AngloAmericanshare (1)US$ millionUnderlying EBITDA (including associates) 1,075 711 1,763 794Underlying operating profit 815 496 1,491 659Underlying earnings (2) 506 312 993 443Capital expenditure 249 94 260 –(1)Amounts based on the Group’s 45% shareholding to 16 August 2012 and a 100% basis thereafter. Underlying earnings from 16 August 2012 excludes the 15% non-controlling interest.(2)See reconciliation below.US$ million 2012 2011Underlying earnings (1)De Beers underlying earnings 506 993Anglo American share (45% prior to 16 August 2012) 153 447Anglo American share (100% from 16 August 2012) 166 –Fair value adjustments on acquisition (2) 18 –Depreciation on assets fair valued on acquisition (3) (44) –Exploration 23 –163 –Non-controlling interest (18) –Intercompany interest 14 –Corporate cost allocation (7) –Other 7 (4)159 (4)Contribution to Anglo American underlying earnings 312 443Operating special itemsDepreciation of fair value uplifts on existing assets (4) 41 –Reversal of uplift on inventory (5) 421 –(1)Debswana is a joint venture between De Beers and the Government of Botswana in which each shareholder has a 50% equity share. The joint venture arrangements provide De Beers with aneconomic interest in Debswana that is based on 19.2% of profits before deducting taxes and royalties paid by the joint venture. Consistent with these arrangements, De Beers proportionatelyconsolidates 19.2% of Debswana’s earnings (before taxes and royalties) in line with the Group’s policy on accounting for joint ventures. As De Beers’ share of earnings is based on profits beforetaxes and royalties, an effective tax rate of nil arises on the earnings of the joint venture in the Group’s Consolidated financial statements.(2)Relates to assets fair valued on acquisition where the treatment in De Beers’ underlying financial statements post-acquisition is already reflected in the Group’s financial statements.(3)Excludes the depreciation of fair value uplifts on the Group’s previously held 45% equity interest.(4)Relates to the depreciation of fair value uplifts on the Group’s previously held 45% equity interest upon obtaining a controlling interest.(5)Inventory held by De Beers at the date of the acquisition is required to be recognised at fair value under IFRS. This results in negligible margins upon the subsequent sale of inventory held at thedate of the acquisition. The impact of fair value uplifts on inventory has been excluded from the Group’s underlying earnings so as not to distort the operating margins of De Beers and to providemore useful information about the performance of the Group.Other informationAnglo American plc Annual Report 2012 241