Anglo American Annual Report 2012

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OPERATING AND FINANCIAL REVIEW GROUP FINANCIAL PERFORMANCETax$ million (unlessotherwise stated)Beforespecialitems andremeasurementsYear ended 31 Dec 2012 Year ended 31 Dec 2011Associates’tax andnoncontrollinginterestsIncludingassociatesBeforespecialitems andremeasurementsAssociates’tax andnoncontrollinginterestsIncludingassociatesProfit before tax 5,610 208 5,818 10,626 401 11,027Tax (1,488) (202) (1,690) (2,741) (385) (3,126)Profit for the financial year 4,122 6 4,128 7,885 16 7,901Effective tax rate includingassociates 29.0% 28.3%In July 2012, the Group acceptedthe conditions of the CompetitionCommission and consequently theassociated assets of Tarmac QuarryMaterials were classified as held forsale and recognised at fair value lesscosts to sell. This resulted in a lossbeing recognised of $135 million.In December 2012 the Group agreedthe sale of its 70% interest in theAmapá iron ore system. The net assetshave been reclassified to held for saleand recognised at fair value less coststo sell. This resulted in a loss beingrecognised of $404 million.Non-operating remeasurementsThe non-operating remeasurementof $1,988 million (2011: nil) reflectsthe gain of $2,017 million, net oftransaction costs, resulting from theremeasurement to fair value of theGroup’s existing 45% shareholdingheld in De Beers at the date acontrolling stake was acquired.This includes a $2.7 billion uplift ondepreciable assets which will unwindthrough operating remeasurementsin the current and future years.Financing remeasurementsFinancing remeasurements reflecta net loss of $88 million (2011: gainof $205 million) and relates to anembedded interest rate derivative,non-hedge derivatives relating to debtand other financing remeasurements.Special items andremeasurements taxSpecial items and remeasurementstax amounted to a credit of$1,110 million (2011: charge of$118 million). This relates to a creditfor one-off tax items of $922 million(2011: credit of $137 million), a taxremeasurement charge of $189 million(2011: charge of $230 million) and atax credit on special items andThe completionof ouracquisition ofan additional40% interestin De Beers inAugust 2012resulted in acash outflow of$4,816 million,net of cashacquired.remeasurements of $377 million(2011: charge of $25 million).The credit for one-off tax itemsof $922 million (2011: credit of$137 million) relates principally to thenet deferred tax credit of $960 millionat Minas-Rio and a net deferred taxcredit of $70 million owing to thereassessment of deferred tax assetsas a result of changes in tax regimeswithin operating segments, partiallyoffset by the write-off of the deferredtax asset in Amapá of $108 millionfollowing the decision to sell the mine.Net finance costsNet finance costs, beforeremeasurements, excludingassociates, were $288 million(2011: $20 million). This increase wasdriven by a decrease in investmentincome of $71 million, owing to loweraverage levels of cash and a higherinterest expense of $103 million,reflecting the increase in debt duringthe year. Foreign exchange losses onnet debt also increased by $74 millioncompared with 2011.TaxThe effective rate of tax before specialitems and remeasurements includingattributable share of associates’ tax forthe year ended 31 December 2012was 29.0%. The increase compared tothe equivalent effective rate of 28.3%for the year ended 31 December 2011is due to the reduced impact of certainnon-recurring factors. The nonrecurringfactors in 2012 includefurther recognition of previouslyunrecognised tax losses and thereassessment of certain withholdingtax provisions across the Group. Infuture periods it is expected that theeffective tax rate, including associates’tax, will remain above the UnitedKingdom statutory tax rate.Balance sheetEquity attributable to equityshareholders of the Company was$37,657 million at 31 December 2012(31 December 2011: $39,092 million).This decrease reflects the loss for theperiod of $1,493 million. Investments inassociates were $2,177 million lowerthan at 31 December 2011, principallyas a result of De Beers becoming asubsidiary following the acquisition ofa further 40% shareholding. Property,plant and equipment increasedby $4,540 million compared to31 December 2011, as a result ofongoing investment in growth projectsand the acquisition of De Beers,partially offset by an increase indepreciation, the transfer of Amapáand Tarmac Quarry Materials to ‘heldfor sale’ and the disposal of ScawSouth Africa.Cash flowNet cash inflows from operatingactivities were $5,562 million(2011: $9,362 million). UnderlyingEBITDA was $8,686 million, adecrease of 35% from $13,348 millionin the prior year, reflecting weakerprices across the Group’s corecommodities and changes inoperational performance.Net cash used in investingactivities was $9,821 million(2011: $4,853 million). Purchasesof property, plant and equipment,net of related derivative cash flows,amounted to $5,678 million, adecrease of $86 million, reflecting theGroup’s disciplined approach to capitalallocation in the current economicenvironment while maintainingexpenditure on strategic growthprojects. Proceeds from disposals,principally the disposal of Scaw SouthAfrica (net of cash and cashequivalents disposed), were$100 million (2011: $533 million).Movements in non-controlling interestduring the year resulted in a cashinflow of $1,220 million mainly$1,907 million from the disposal of25.4% of AA Sur, partly offset by thepurchase of 4.5% of Kumba for$698 million.Net cash inflow from financingactivities was $1,950 million comparedwith $1,474 million in 2011. During theyear the Group paid dividends of$970 million to company shareholders,46 Anglo American plc Annual Report 2012
Sensitivity analysis in respect of currency and commodity pricesSet out below is the impact on underlying earnings of a 10% fluctuationin certain of the Group’s commodity prices and exchange rates(1)Average price10%(7)Commodity2012 2011sensitivityUS$ millionPlatinum (2) $1,555/oz $1,725/oz 150Metallurgical Coal (3) $178/t $251/t 195Thermal Coal (4) $92/t $114/t 209Copper (5) 361c/lb 400c/lb 280Nickel (5) 794c/lb 1,035c/lb 37Iron Ore (6) $122/t $158/t 191Palladium (2) $647/oz $736/oz 41ZAR/USD 8.21 7.26 434AUD/USD 0.97 0.97 190CLP/USD 486 484 69(1)‘oz’ denotes ounces, ‘t’ denotes tonnes, ‘c’ denotes cents, ‘lb’ denotes pounds.(2)Source: Johnson Matthey Plc.(3)Average realised FOB price of export metallurgical coal.(4)Average realised FOB price of export thermal coal (South Africa).(5)Being the average LME price.(6)Average price represents average iron ore (South Africa) export price achieved.(7)Excludes the effect of any hedging activities. Stated after tax at marginal rate. Sensitivities are the averageof the positive and negative and the impact of a 10% change in the average prices received and exchange ratesduring 2012. Increases in commodity prices increase underlying earnings and vice versa. A strengthening ofthe South African rand, Australian dollar and Chilean peso relative to the US dollar reduces underlying earningsand vice versa.and $1,267 million in dividends tonon-controlling interests.The completion of our acquisition of anadditional 40% interest in De Beers inAugust 2012 resulted in a cash outflowof $4,816 million, net of cash acquired.Liquidity and fundingNet debt, including related hedges,was $8,615 million, an increase of$7,241 million from $1,374 million at31 December 2011. The increase innet debt reflects weaker operatingcash flows owing to lower commodityprices in 2012 and the acquisition of40% of De Beers, partially offset bythe disposal of 25.4% in AA Sur.Net debt at 31 December 2012comprised $17,759 million of debt,partially offset by $9,312 million ofcash and cash equivalents, and thecurrent position of derivative liabilitiesrelated to net debt of $168 million. Netdebt to total capital (1) at 31 December2012 was 16.4%, compared with 3.1%at 31 December 2011.At 31 December 2012, the Group hadundrawn committed bank facilities of$9.3 billion.(1)Net debt to total capital is calculated as net debtdivided by total capital. Total capital is net assetsexcluding net debt.The Group’s forecasts and projections,taking account of reasonably possiblechanges in trading performance,indicate the Group’s ability to operatewithin the level of its current facilitiesfor the foreseeable future.Corporate activities andunallocated costsCorporate costs which are consideredto be value adding to the business unitsare allocated to each business unit.Costs reported externally as Groupcorporate costs only comprise costsassociated with parental or directshareholder-related activities.DividendsAnglo American’s dividend policy willprovide a base dividend that will bemaintained or increased through thecycle. Consistent with the policy, theBoard has recommended a finaldividend of 53 cents per share,giving a total rebased dividend forthe year of 85 cents per share, subjectto shareholder approval at the AnnualGeneral Meeting to be held on19 April 2013. This reflects confidencein the underlying business andcompletes the reinstatementjourney to rebase the dividend to becompetitive with diversified peers.This recommendation is consistentwith the commitment to have adisciplined balance between themaintenance of a strong investmentgrade rating, returns to shareholdersand sequencing of future investmentin line with resulting funding capacity.From time to time any cash surplusto requirements will be returnedto shareholders.Analysis of dividendsUS cents per share 2012 2011Interim dividend 32 28Recommendedfi n a ld i v i d e n d 53 46Total dividends 85 74Related party transactionsRelated party transactions aredisclosed in note 37 to the financialstatements.Basis of disclosureThis operating and financial review(OFR) describes the main trends andfactors underlying the development,performance and position ofAnglo American plc (the Group)during the year ended 31 December2012, as well as those likely to affectthe future development, performanceand position. It has been prepared inline with the guidance provided in thereporting statement on the operatingand finance review issued by theUK Accounting Standards Board inJanuary 2006.Forward looking statementsThis OFR contains certain forwardlooking statements with respect tothe financial condition, results,operations and businesses of theGroup. These statements andforecasts involve risk and uncertaintybecause they relate to events anddepend on circumstances that occurin the future. There are a numberof factors that could cause actualresults or developments todiffer materially from thoseexpressed or implied by theseforward looking statements.Operating and financial reviewAnglo American plc Annual Report 2012 47
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Anglo American plc20 Carlton House
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