Group financial performance
Financial review of Group results
Group operating profit was a record at $11,095 million, 14% higher than 2010.
This improvement in operating profit was primarily driven by increases in the realised prices of commodities including a 42% rise in export metallurgical coal, a 39% increase in South African export thermal coal, and a 26% increase in iron ore. However, increased commodity prices impacted results mainly in the first half of the year as global macroeconomic uncertainties led to a decrease in commodity prices in the second half.
During the year, three projects (Barro Alto, Los Bronces expansion and Kolomela) were delivered. While this contributed to an increase in production, operating profit was negatively affected by production disruptions across the Group's operations, due to various causes, including inclement weather, safety stoppages and grade declines. Industry-wide mining cost pressures also negatively affected operating profit, although the impact was partly mitigated by the continuing positive performance of our embedded asset optimisation and procurement programmes.
The Group's results are impacted by currency fluctuations in the countries where the operations are based. The weakening of the US dollar against the Australian dollar, Chilean peso and Brazilian real, resulted in a $149 million negative exchange variance in operating profit compared to 2010. CPI inflation had a further negative $585 million impact on operating profit.
Iron Ore and Manganese generated an operating profit of $4,520 million, 23% higher than 2010. Within this commodity group, Kumba Iron Ore had a strong performance with a record operating profit of $4,397 million, 29% higher than the previous year.
Metallurgical Coal delivered a record operating profit of $1,189 million, a 52% increase on 2010, primarily due to higher realised export selling prices, which offset the impact of rain on production and sales.
Thermal Coal's record operating profit of $1,230 million was 73% higher as a result of higher export thermal coal prices for both South African and Colombian coal and a strong rail performance in South Africa in the second half of 2011.
Copper delivered an operating profit of $2,461 million, 13% lower, as a result of lower sales volumes and higher operating costs, partly offset by high copper prices during the first half of the year.
Nickel reported an operating profit of $57 million, $39 million lower than 2010, largely due to higher project evaluation and exploration expenditure related to development of the unapproved Nickel project pipeline.
Platinum generated an operating profit of $890 million, a $53 million increase, due to higher metal prices, which were offset by higher costs driven by labour and electricity rate increases.
Diamonds reported a record operating profit of $659 million, 33% higher, owing to significant price increases in 2011.
Other Mining and Industrial generated an operating profit of $195 million, 71% lower, owing to the disposal of a number of businesses during the year and in 2010. Copebrás and Catalão delivered a combined increase in operating profit of 29%. This was driven by an increase in sales volumes and prices at Copebrás owing to high demand for fertilizers.
Group underlying earnings were $6,120 million, a 23% increase on 2010, which reflects the operational results above. Net finance costs, before remeasurements, excluding associates, were $20 million (2010: $244 million). The effective rate of tax, before special items and remeasurements and including attributable share of associates' tax, reduced in the year from 31.9% to 28.3%.
Group underlying earnings per share were $5.06 (2010: $4.13).
|$ million||Year ended
31 Dec 2011
31 Dec 2010
|Iron Ore and Manganese||4,520||3,681|
|Other Mining and Industrial||195||664|
|Corporate Activities and Unallocated Costs||15||(181)|
|Operating profit including associates before special items
Reconciliation of profit for the year to underlying earnings
|$ million||Year ended
31 Dec 2011
31 Dec 2010
|Underlying earnings (1)||6,120||4,976|
|Underlying earnings per share ($)||5.06||4.13|
|Profit for the financial year attributable to equity shareholders of the Company||6,169||6,544|
|Operating special items||173||253|
|Net profit on disposals||(203)||(1,598)|
|Financing special items||9||13|
|Special items and remeasurements tax||118||112|
|Non-controlling interests on special items and remeasurements||(15)||140|
- (1) See note 4 to the financial statements.
Summary income statement
|$ million||Year ended
31 Dec 2011
31 Dec 2010
|Operating profit before special items and remeasurements||9,668||8,508|
|Operating special items||(164)||(228)|
|Operating profit from subsidiaries and joint ventures||9,439||8,666|
|Net profit on disposals||183||1,579|
|Share of net income from associates (see reconciliation below)||977||822|
|Total profit from operations and associates||10,599||11,067|
|Net finance costs before remeasurements||(20)||(244)|
|Profit before tax||10,782||10,928|
|Income tax expense||(2,860)||(2,809)|
|Profit for the financial year||7,922||8,119|
|Profit for the financial year attributable to equity shareholders||6,169||6,544|
|Basic earnings per share ($)||5.10||5.43|
|Group operating profit including associates before special items
|Operating profit from associates before special items and remeasurements||1,427||1,255|
|Operating special items and remeasurements||(18)||(29)|
|Net profit on disposals||20||19|
|Net finance costs (before special items and remeasurements)||(48)||(88)|
|Financing special items and remeasurements||(7)||(12)|
|Income tax expense (after special items and remeasurements)||(384)||(315)|
|Non-controlling interests (after special items and remeasurements)||(13)||(8)|
|Share of net income from associates||977||822|
- (1) Operating profit before special items and remeasurements from subsidiaries and joint ventures was $9,668 million (2010: $8,508 million) and attributable share from associates was $1,427 million (2010: $1,255 million). For special items and remeasurements see note 5 to the financial statements.
Special items and remeasurements
Operating special items and remeasurements, including associates, amounted to a loss of $247 million and included impairment and related charges, restructuring costs and operating remeasurements. Impairment and related charges were $154 million (2010: $122 million). This principally comprised an impairment of Tarmac Building Products of $70 million (Other Mining and Industrial segment) and accelerated depreciation of $84 million (2010: $97 million), mainly arising at Loma de Níquel (Nickel segment). The accelerated depreciation charge at Loma de Níquel has arisen due to ongoing uncertainty over the renewal of three concessions that expire in 2012 and over the restoration of 13 concessions that have been cancelled. Restructuring costs in 2011 principally relate to retrenchment and consultancy costs within the Platinum and Diamond segments (2010: Other Mining and Industrial, Platinum and Diamond segments).
Operating remeasurements reflect a net loss of $74 million (2010: gain of $382 million) principally in respect of non-hedge derivatives of capital expenditure in Iron Ore Brazil. Derivatives which have been realised in the year had a cumulative net operating remeasurement gain since their inception of $383 million (2010: gains of $255 million).
Net profit on disposals, including associates, amounted to a gain of $203 million (2010: $1,598 million). In February 2011, the Group completed the disposal of its 100% interest in the Lisheen operation and its 74% interest in Black Mountain Mining (Proprietary) Limited, which holds 100% of the Black Mountain mine and the Gamsberg project, resulting in a net cash inflow of $499 million, generating a profit on disposal of $397 million. Lisheen and Black Mountain were included in the Other Mining and Industrial segment.
Also included in net profit on disposals is an IFRS 2 Share-based Payment charge of $131 million resulting from a community economic empowerment transaction involving certain of Platinum's host communities, which was completed in December 2011.
The Group sold Tarmac's businesses in China, Turkey and Romania in July, October and November 2011 respectively.
Financing remeasurements reflect a net gain of $205 million (2010: gain of $106 million), including associates, and relate to an embedded interest rate derivative, non-hedge derivatives of debt and other financing remeasurements.
Special items and remeasurements tax amounted to a charge of $118 million (2010: charge of $112 million). This related to a credit for one-off tax items of $137 million (2010: nil), a tax remeasurement charge of $230 million (2010: credit of $122 million) and a tax charge on special items and remeasurements of $25 million (2010: charge of $234 million).
The current year credit relating to one-off tax items of $137 million principally related to the recognition of deferred tax assets in Iron Ore Brazil which were originally written off as part of the impairment charges related to the Amapá iron ore system in 2009, and a capital gains tax refund related to a prior year disposal.
|Year ended 31 December 2011||Year ended 31 December 2010|
|Operating special items||(164)||(9)||(173)||(228)||(25)||(253)|
|Operating special items and remeasurements||(229)||(18)||(247)||158||(29)||129|
|Net profit on disposals||183||20||203||1,579||19||1,598|
|Financing special items||-||(9)||(9)||-||(13)||(13)|
|Special items and
on special items and
Net finance costs
Net finance costs Net finance costs, before remeasurements, excluding associates, were $20 million (2010: $244 million). This reduction was driven by increased interest income due to higher average levels of cash and an increase in interest capitalised.
IAS 1 (Revised) 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 2011 is $384 million (2010: $315 million). Excluding special items and remeasurements, this amounted to $385 million (2010: $313 million).
The effective tax rate before special items and remeasurements, including attributable share of associates' tax, for the year ended 31 December 2011 was 28.3% (2010: 31.9%). The decrease was due to a number of non-recurring factors that include the recognition of previously unrecognised tax losses and the reassessment of certain withholding tax provisions across the Group. In future, it is expected that the effective tax rate, including associates' tax, will remain above the United Kingdom statutory tax rate.
|Year ended 31 December 2011||Year ended 31 December 2010|
|$ million (unless otherwise stated)||Before
|Profit before tax||10,626||401||11,027||9,109||322||9,431|
|Profit for the financial year||7,885||16||7,901||6,410||9||6,419|
|Effective tax rate including associates (%)||28.3%||31.9%|
Equity attributable to equity shareholders of the Company was $39,092 million at 31 December 2011 (31 December 2010: $34,239 million). This variance was mainly due to the increase in Group operating profit, and the proceeds on the disposal of 24.5% of Anglo American Sur (AA Sur). Investments in associates were $340 million higher than at 31 December 2010, principally as a result of a significant improvement in earnings at De Beers. Property, plant and equipment increased by $739 million compared to 31 December 2010, due to ongoing investment in growth projects. There were no assets classified as held for sale at 31 December 2011 (compared to assets, net of associated liabilities, of $188 million at 31 December 2010) due to the sale of the remaining Zinc assets during the year.
Net cash inflows from operating activities were $9,362 million (2010: $7,727 million). EBITDA was $13,348 million, an increase of 11% from $11,983 million in the prior year, reflecting strong prices across the Group's core commodities.
Net cash used in investing activities was $4,853 million (2010: $2,470 million). Purchases of property, plant and equipment, net of related derivative cash flows, amounted to $5,764 million, an increase of $770 million, reflecting major spend on the Group's strategic growth projects. Proceeds from disposals, principally the Group's remaining Zinc portfolio (net of cash and cash equivalents disposed) were $533 million (2010: $2,795 million).
Net cash inflow from financing activities was $1,474 million compared with net cash used of $2,400 million in 2010. During the year the Group paid dividends of $818 million to company shareholders, and $1,404 million in dividends to non-controlling interests.
Liquidity and funding
Net debt, including related hedges, was $1,374 million, a decrease of $6,010 million from $7,384 million at 31 December 2010. The decrease in net debt reflects strong operating cash flows and proceeds on the disposal of 24.5% of AA Sur.
Net debt at 31 December 2011 comprised $12,873 million of debt, partially offset by $11,732 million of cash and cash equivalents, and the current position of derivative liabilities related to net debt of $233 million. Net debt to total capital(1) at 31 December 2011 was 3.1%, compared with 16.3% at 31 December 2010.
At 31 December 2011, the Group had undrawn committed bank facilities of $8.4 billion.
The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, indicate the Group's ability to operate within the level of its current facilities for the foreseeable future.
Corporate Activities and Unallocated Costs
Following a reassessment of our estimate of the likely outcome of existing insurance claims and a low number of new claims received, liabilities in the insurance captive have reduced in 2011. This reduction, combined with an increase in insurance premium income, has more than offset the unallocated corporate costs in 2011, resulting in an operating profit recorded within Corporate Activities and Unallocated Costs.
Anglo American's dividend policy will provide a base dividend that will be maintained or increased through the cycle. The Group has maintained this policy and recommended a final dividend of 46 US cents per share, giving a total dividend for the year of 74 US cents per share, subject to shareholder approval at the Annual General Meeting to be held on 19 April 2012. As previously stated, taking into account the Group's substantial investment programme for future growth, future earnings potential and the continuing need for a robust balance sheet, any surplus cash will be returned to shareholders.
Analysis of dividends
|US cents per share||2011||2010|
|Recommended final dividend||46||40|
Sensitivity analysis in respect of currency and commodity prices
Set out below is the impact on underlying earnings of a 10% fluctuation in certain of the Group's commodity prices and exchange rates
2011 2010 US$ million
- (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 average of the positive and negative and the impact of a 10% change in the average prices received and exchange rates during 2011. Increases in commodity prices increase underlying earnings and vice versa. A strengthening of the South African rand, Australian dollar and Chilean peso relative to the US dollar reduces underlying earnings and vice versa.
Related party transactions
Related party transactions are disclosed in note 36 to the financial statements.
Basis of disclosure
This operating and financial review (OFR) describes the main trends and factors underlying the development, performance and position of Anglo American plc (the Group) during the year ended 31 December 2011, as well as those likely to affect the future development, performance and position. It has been prepared in line with the guidance provided in the reporting statement on the operating and finance review issued by the UK Accounting Standards Board in January 2006.
Forward looking statements
This OFR contains certain forward looking statements with respect to the financial condition, results, operations and businesses of the Group. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.