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Group financial performance

Financial review of Group results

Group operating profit was $4,957 million, with operating profit from core operations of $4,451 million, 51% lower than 2008. This decline in operating profit was driven by significant decreases in realised prices of all commodities, with the exception of copper. Price decreases included a 38% reduction in the platinum basket, an average 40% reduction in benchmark export iron ore, a 30% decline in average nickel and a more than 20% decline in export metallurgical coal.

Copper operating profit was 6% higher than for 2008, with record production and a 2% increase in the realised price of copper, partially due to favourable final settlements of sales into a rising market. Nickel profits declined due to a combination of the lower price, with destocking in the stainless steel sector and a 25% inflation rate in Venezuela. Platinum was impacted by significantly lower average prices compared with 2008. Kumba Iron Ore maintained a strong operating profit margin despite a 40% decline in average benchmark export iron ore prices, achieved through increased volumes, principally sold to China. Samancor's profit declined due to the decrease in global steel demand. Metallurgical Coal and Thermal Coal profits were impacted by the decline in export demand and prices, partially offset by cost reduction programmes. Diamonds saw Diamond Trading Company (DTC) revenues fall by $2.7 billion and, through production holidays and restructuring, De Beers cut its production and operating costs by $900 million. However, despite these measures operating profit fell by 87%.

Other Mining and Industrial's operating profit increased in the zinc and niobium businesses, with growth in sales volumes. This was more than offset by lower profits from Tarmac due to the housing market decline in Europe and significant volume decline for Scaw Metals' products. Other Mining and Industrial's operating profit in 2009 relative to 2008 was lower following the sale of Tongaat Hulett and Hulamin in the third quarter of 2009 and also the sale of Namakwa Sands in October 2008.

Group underlying earnings were $2,569 million, 51% lower than 2008, which reflected the operational results discussed above. The net finance costs charge, before remeasurements of $273 million, was $179 million lower than 2008. The effective tax rate, before special items and remeasurements and including attributable share of associates' tax, reduced in the year from 33.4% to 33.1%.

Group underlying earnings per share were $2.14 compared with $4.36 in 2008, a 51% reduction.

The Group's results are influenced by a variety of currencies owing to the geographic diversity of the Group. In 2009, there was a negative exchange variance in underlying earnings of $68 million. The Group's results benefited from the weaker Australian dollar, Chilean peso and Brazilian real. Despite the average rand rate in 2009 being 2% weaker than 2008, there was a negative rand exchange impact on underlying earnings. This reflected a significantly stronger rand in the second half of the year when operating activities increased with stronger demand. There was a negative impact on underlying earnings from a significant decline in prices amounting to $2,290 million, reflecting lower prices across almost all commodities.

Underlying earnings

$ million Year ended
31 Dec 2009
Year ended
31 Dec 2008
Profit for the financial year attributable to equity shareholders of the Company 2,425 5,215
Operating special items including associates 2,574 477
Operating remeasurements including associates (734) 880
Net profit on disposals including associates (1,632) (1,027)
Financing special items including associates 7 -
Financing remeasurements including associates:    
Exchange loss/(gain) on De Beers preference shares 21 (28)
Unrealised net losses/(gains) on non-hedge derivatives related to net debt 94 (8)
Other financing remeasurements 13 -
Tax special items including associates 152 -
Tax remeasurements (469) 153
Tax on special items and remeasurements including associates 180 (264)
Minority interests on special items and remeasurements including associates (62) (161)
Underlying earnings 2,569 5,237
Underlying earnings per share ($) 2.14 4.36

Special items and remeasurements

Operating special items and remeasurements, including associates, amounted to a charge of $1,840 million. Included in operating special items, including associates, were impairments totalling $2,130 million. This included an impairment charge against the Amapá iron ore system. Amapá was acquired in 2008 as an operating asset as part of the acquisition of the Minas Rio project. During 2009, Amapá experienced significant operational challenges across its mine, plant and logistics chain, producing 2.7 Mt compared with the design capacity of 6.5 Mtpa. Management's focus has been, and remains, on seeking to markedly improve performance from the existing operations, rather than investing to expand the operation. The Amapá system is currently believed to have capacity to increase production to 5 Mtpa without significant further capital expenditure. Due to the focus on improving operational performance and preserving cash, limited exploration drilling was undertaken in 2009 and the anticipated growth potential of surrounding licence areas remains untested. Given these operational difficulties and delays in increasing production, the Group recorded an impairment charge of $1.5 billion (after tax and minority interest) against the carrying value of the asset.

In January 2008, the Venezuelan Ministry of Basic Industries and Mining (MIBAM) published a resolution cancelling 13 of Minera Loma de Níquel's (MLdN) 16 exploration and exploitation concessions due to MLdN's alleged failure to fulfil certain conditions of the concessions. The current mining and metallurgical facilities are located on the three concessions that have not been cancelled. MLdN believes that it has complied with the conditions of these concessions and has lodged administrative appeals against the notices of termination and is waiting for a response from MIBAM. MLdN may in the future undertake further appeals, including with Venezuela's Supreme Court, if the MIBAM's ruling does not adequately protect its interests.

An impairment and associated adjustments of $114 million have been recorded due to increased uncertainty over the renewal of the three concessions that have not been cancelled but that expire in 2012 and over the restoration of the 13 concessions that were cancelled.

At 31 December 2009, Anglo American's interest in the book value of MLdN, including its mineral rights, was $285 million (as included in the Group's balance sheet). In the 12 months to December 2009, MLdN's production and contribution to Group operating profit were respectively 10,400 tonnes of nickel in ferronickel and a $7 million loss. The average price of nickel in 2009 was 667 c/lb. As of 17 February 2010, the price of nickel was 910 c/lb.

Due to the nature of the assets, the effects of the strengthening Canadian dollar and the impact of the global recession on pricing and production levels, De Beers recorded an impairment of $595 million (attributable share: $267 million) in respect of its Canadian asset portfolio and has written off $101 million (attributable share: $45 million) of Canadian deferred tax assets.

Also included in special items and remeasurements were one-off redundancy costs at the corporate centre of $47 million, and within Anglo Platinum, Metallurgical Coal and Thermal Coal of $136 million. There were operating remeasurement gains of $734 million, which principally related to net gains on non-hedge capital expenditure derivatives held by Iron Ore Brazil and Los Bronces, and an unrealised gain on an embedded derivative at MLdN.

Net profit on disposals of $1,632 million, including associates, comprised a profit on the disposal of the residual shareholdings in AngloGold Ashanti of $1,139 million, $247 million on Anglo Platinum's disposal of its 50% share in Booysendal and $69 million relating to the disposal of 51% of Anglo Platinum's 100% share in Lebowa Platinum Mines.

Financing remeasurements including associates were made up of an unrealised net loss of $94 million on non-hedge derivatives and a $21 million foreign exchange loss on retranslating De Beers US dollar preference shares held by a rand denominated entity.

Tax remeasurements amounted to a gain of $469 million related to foreign currency translation of deferred tax balances.

Summary income statement

$ million Year ended
31 Dec 2009
Year ended
31 Dec 2008
Operating profit before special items and remeasurements 4,377 7,981
Operating special items (2,275) (352)
Operating remeasurements 638 (779)
Operating profit from subsidiaries and joint ventures 2,740 6,850
Net profit on disposals 1,612 1,009
Share of net income from associates(1) 84 1,113
Total profit from operations and associates 4,436 8,972
Net finance costs before remeasurements (273) (452)
Financing remeasurements (134) 51
Profit before tax 4,029 8,571
Income tax expense (1,117) (2,451)
Profit for the financial year 2,912 6,120
Minority interests (487) (905)
Profit for the financial year attributable to equity shareholders 2,425 5,215
Basic earnings per share ($) 2.02 4.34
Group operating profit including associates before special items and remeasurements(2) 4,957 10,085
(1) Operating profit from associates before special items and remeasurements 580 2,104
Operating special items and remeasurements (203) (226)
Net profit on disposals 20 18
Net finance costs (before special items and remeasurements) (28) (147)
Financing special items (7) -
Financing remeasurements 6 (15)
Income tax expense (after special items and remeasurements) (286) (606)
Minority interests (after special items and remeasurements) 2 (15)
Share of net income from associates 84 1,113
(2)
Operating profit before special items and remeasurements from subsidiaries and joint ventures was $4,377 million and attributable share from associates was $580 million.
For special items and remeasurements, see note 7 to the Financial statements.

Special items and remeasurements

  Year ended 31 Dec 2009   Year ended 31 Dec 2008
$ million Excluding associates Associates Total   Excluding associates Associates Total
Operating special items (2,275) (299) (2,574)   (352) (125) (477)
Operating remeasurements 638 96 734   (779) (101) (880)
Operating special items and remeasurements (1,637) (203) (1,840)   (1,131) (226) (1,357)

Operating profit by business unit

$ million Year ended
31 Dec 2009
Year ended
31 Dec 2008
Platinum 32 2,169
Diamonds 64 508
Copper 2,010 1,892
Nickel 2 123
Iron Ore and Manganese 1,489 2,554
Metallurgical Coal 451 1,110
Thermal Coal 721 1,078
Exploration (172) (212)
Corporate activities and unallocated costs (146) (219)
Operating profit including associates before special items and remeasurements - core operations 4,451 9,003
Other Mining and Industrial 506 1,082
Operating profit including associates before special items and remeasurements 4,957 10,085
Underlying earnings - core operations (1) 2,166 4,503
(1)
See note 3 to the Financial statements.

Net finance costs

Net finance costs, excluding a net remeasurement loss of $134 million (2008: gain of $51 million), decreased to $273 million (2008: $452 million). This was due to a $70 million reduction in the total interest expense and a $184 million reduction in other financing losses (principally exchange losses), partially offset by a $75 million reduction in total investment income.

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 income tax expense. Associates' tax included within 'Share of net income from associates' for the year ended 31 December 2009 was $286 million (2008: $606 million). Excluding special items and remeasurements, this amounted to $235 million (2008: $623 million).

The effective rate of tax before special items and remeasurements, including attributable share of associates' tax for the year ended 31 December 2009, was 33.1%. This was broadly in line with the equivalent effective rate of 33.4% for the year ended 31 December 2008. In future periods, it is expected that the effective tax rate, including associates' tax, will remain above the United Kingdom statutory tax rate.

Taxation

  Year ended 31 Dec 2009   Year ended 31 Dec 2008
$ million (unless otherwise stated) Before special items and remeasurements Associates' tax and minority interests Including associates   Before special items and remeasurements Associates' tax and minority interests Including associates
Profit before tax 4,422 234 4,656   8,832 654 9,486
Tax (1,305) (235) (1,540)   (2,545) (623) (3,168)
Profit for the financial year 3,117 (1) 3,116   6,287 31 6,318
Effective tax rate including associates (%)     33.1       33.4

Balance sheet

Equity attributable to equity shareholders of the Company was $26,121 million compared with $20,221 million at 31 December 2008. This increase reflected additional tangible assets of $5,653 million with capital investment, principally in the Group's core commodity assets. Cash at the end of 2009 was $498 million higher than 2008, which included a $316 million benefit of a weak dollar on non-US cash holdings. A weaker dollar, higher commodity prices than at 31 December 2008 as well as a stronger trading performance in the later stages of 2009 compared with the prior year have contributed to a $929 million increase to inventories and current receivables.

This was offset by an increase in short, medium and long term borrowings, which were $320 million greater than 2008, reflecting refinancing in 2009 and the impact of a stronger rand on rand denominated debt. Deferred tax liabilities also increased in the year by $637 million. Investments in associates were $300 million lower as a result of De Beers impairing its Canadian assets, a demand driven decline in earnings at Samancor and the disposal of Tongaat Hulett and Hulamin.

Cash flow

Net cash inflows from operating activities were $4,087 million compared with $8,065 million in 2008. EBITDA was $6,930 million, a decrease of 42% from $11,847 million in 2008.

Proceeds from the sale of financial asset investments totalled $2,041 million, including net cash inflows on the sale of the Group's residual interest in the shares of AngloGold Ashanti and proceeds received on the sale of preference shares as part of the disposal of the Booysendal joint venture.

Purchases of tangible assets amounted to $4,607 million, a decrease of $539 million. This spend was focused on the four key near term strategic growth projects (Los Bronces, Barro Alto, Minas Rio and Kolomela). The overall reduction reflected the planned reduction on capital investment outside these key projects.

Net cash used in financing activities was $1,605 million compared with net cash inflows in 2008 of $3,542 million. During the year, the Group used cash to repay $6,624 million of short term borrowings and the payment of $741 million of interest. This was partially offset by the proceeds from four bond issuances completed in the year totalling $5,892 million.

Liquidity and funding

Net debt, excluding hedges, was $10,995 million, a decrease of $48 million from 31 December 2008. Cash and cash equivalents, excluding the impact of exchange, increased by $259 million. This reflected operating cash flows, the sale of financial asset investments and investment in associates, purchase of tangible assets and movement in financing activities as detailed in the cash flow section.

Net debt at 31 December 2009 comprised $14,317 million of debt, partly offset by $3,319 million of cash and cash equivalents (net of bank overdrafts) and $3 million current financial asset investments. As a result of refinancing activities outlined below the debt aging profile changed, with 90% of the total debt being due after more than one year, compared with 52% at 31 December 2008. Net debt to total capital(1) at 31 December 2009 was 30.8%, compared with 37.8% at 31 December 2008.

In 2009, Anglo American conducted four major bond transactions, raising a total of $5.9 billion, which refinanced the Group's short term debt position. In April, $2 billion was raised in a dual tranche issuance, with $1.25 billion maturing in 2014 and $0.75 billion in 2019. In May, a convertible bond was issued, maturing in 2014, which raised $1.7 billion. In September and December, two separate Eurobonds were issued, each raising -750 million ($1.1 billion), maturing in 2013 and 2016 respectively.

At 31 December 2009, Anglo American had undrawn bank facilities of $9.5 billion, cash deposits of $3.3 billion and commercial paper maturing throughout 2010 of $67 million. Anglo American's only significant facilities maturing in 2010 are a £300 million ($500 million) Eurobond which matures in December 2010 as well as the Amapá facilities of $538 million. In addition the Group has undrawn rand facilities equivalent to $1.9 billion with 364 day maturities which roll automatically on a daily basis, unless notice is served.

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 for the foreseeable future.

Dividends

The resumption of the dividend at the earliest possible time remains a key priority for the Board. Assuming that the commodity price environment and outlook continue to improve and the business performance remains robust, the Board would expect to be able to announce the resumption of a dividend in respect of the current financial year.

Return on capital employed (ROCE)

ROCE in 2009 was 14.6% compared with 36.8% in 2008. The decrease was mainly due to the operating results discussed in this financial review of Group results and in the business unit overviews.

Group corporate cost allocation

As a result of the Group announcement on 22 October 2009 to streamline its management structure and remove a layer of global management, certain activities previously performed within the divisions are now to be undertaken at the corporate centre, certain will be undertaken in the new business units and the remainder will no longer be performed. At the same time, it has been decided that the figure presented externally as Group corporate costs will only comprise costs associated with parental or direct shareholder related activities and that costs associated with activities which are value adding to the business units will be reported within the business units. As a result, a proportion of corporate costs which are believed to be value adding to the business units will be allocated to each business unit. The Group corporate costs, as included within the notes to the accounts, can be reconciled to the historical basis for presentation as in the table below.

Corporate costs (on a consistent basis with those reported in the 2008 Annual Report) of $272 million (2008: $345 million) were incurred in 2009, a reduction of $73 million. The reduction was due in part to the strengthening dollar but principally resulted from stringent cost reduction measures across the corporate offices.

(1)
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.

Group corporate costs

$ million 2009 2008
Corporate costs as previously reported 272 345
Costs previously reported within divisional results 76 102
Corporate costs allocated to business units (202) (228)
Corporate costs as reported under new structure 146 219

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

$ million Year ended
31 Dec 2009
Year ended
31 Dec 2008
Platinum 636 507
Copper 244 212
Nickel 26 27
Iron Ore and Manganese 81 52
Metallurgical Coal 249 205
Thermal Coal 107 78
Other Mining and Industrial 360 404
Exploration - -
Corporate activities and unallocated costs 22 24
  1,725 1,509

Analysis of capital expenditure on a cash flow basis by segment (subsidiaries and joint ventures) (1)

$ million Year ended
31 Dec 2009
Year ended
31 Dec 2008
Platinum 1,150 1,563
Copper 1,068 808
Nickel 554 530
Iron Ore and Manganese 1,044 783
Metallurgical Coal 96 467
Thermal Coal 400 365
Other Mining and Industrial 268 603
Exploration - 1
Corporate activities and unallocated costs 27 26
  4,607 5,146
(1)
Cash capital expenditure excludes cash flow on related derivatives.

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Annual Report 2009