De Beers Interim Results
Anglo American PLC
23 July 2004
News Release
23 July 2004
De Beers Societe Anonyme ("Dbsa") today reported headline earnings for the six
months ended 30 June 2004 of US$424 million.
Anglo American plc ("AA plc") arrives at its headline earnings in respect of De
Beers by accounting for the interests arising from the ordinary shares and the
10% preference shares it holds in DB Investments ("DBI").
AA plc will therefore report headline earnings of US$217 million for the six
months ended 30 June 2004 from its investment in DBI, as reconciled in the table
below:
Reconciliation of headline earnings for the 6 months ended 30 June 2004
US$ million Total Ordinary shares Preference
shares (3)
• DBI headline earnings - IFRS (100%) 424 - -
• GAAP adjustments (1) (14) - -
• DBI headline earnings - UK GAAP (100%) 410 357 53
• AA plc's 45% ordinary share interest 161 161 -
• Additional 3.65% ordinary share interest 13 13 -
(2)
• AA plc's portion of the preference shares 43 - 43
(3)
• AA plc headline earnings 217 174 43
(1) The GAAP adjustments include -US$31 million relating to the mark-to-market
of interest rate hedging contracts referred to in Dbsa's 2003 year end press
release. Whereas in Dbsa's earnings, the full amount of US$70 million was
charged against earnings in 2003, under UK GAAP US$31 million is charged against
earnings in the first six months of 2004, being the portion that was realised in
the period.
(2) As a result of De Beers' partial interest in Debswana Diamond Company
(Proprietary) Limited (one of the shareholders in DBI), AA plc accounts for an
additional 3.65% of DBI's post-tax earnings attributable to ordinary shares.
(3) AA plc grosses up its preference share income to the operating profit level
and accounts for its preference share interest in operating profit, exceptional
items, investment income and net interest, tax and minorities, in the same way
as it accounts for its ordinary share interest in these balances. This
treatment is in accordance with FRS9, paragraph 33, which indicates that where
preference shares are an integral part of the investor's long-term interest, it
is appropriate to include the preference share interest with the ordinary share
interest in determining the investor's overall share of an associate's results.
The headline earnings attributable to AA plc's US$35 million preference share
income are arrived at by adjusting for a proportion of exceptional items (-US$1
million) and goodwill amortisation (+US$9 million) in the same way as the
ordinary share interest is calculated.
As noted in Dbsa's press release, on 30 June 2004 Dbsa redeemed 25% of its
preference shares and on that date AA plc received US$175 million, representing
25% of its US$701 million preference share interest.
In the six months ended 30 June 2004, AA plc received from DBI a US$68 million
final dividend on ordinary shares relating to FY 2003, US$35 million dividends
representing the second US$35 million payment on preference shares for 2003, and
US$9 million representing the first dividend for 2004 on the redeemed preference
shares. A US$26 million first dividend for 2004 on the remaining preference
shares and a US$112 million interim dividend on ordinary shares relating to FY
2004 are scheduled for payment on 2 August 2004.
In the six months ended 30 June 2003, AA plc received from DBI a US$56 million
final dividend on ordinary shares relating to FY 2002 and US$35 million
dividends representing the second US$35 million payment on preference shares for
2002. A US$35 million first dividend on preference shares for 2003 and a US$112
million interim dividend on ordinary shares were received from DBI during the
second half of 2003.
Reconciliation of headline earnings for the 6 months ended 30 June 2003 (4)
US$ million Total Ordinary shares Preference
shares
• DBI headline earnings (100%) - restated (4) 376 - -
• GAAP adjustments - restated (4) 96 - -
• DBI headline earnings - UK GAAP (100%) 472 417 55
• AA plc's 45% ordinary share interest 188 188 -
• Additional 3.65% ordinary share interest 15 15 -
• AA plc's portion of the preference shares 45 - 45
• AA plc headline earnings 248 203 45
(4) As explained in Dbsa's press release, Dbsa's headline earnings for the six
months ended 30 June 2003 have been restated to US$376 million (previously
reported as US$414 million). As the restatement does not affect the UK GAAP
figures previously reported by AA plc, the GAAP adjustment has also been
restated accordingly.
The above figures are unaudited.
De Beers Societe Anonyme
(incorporated under the laws of Luxembourg)
23 July 2004
INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2004
DIRECTORS' COMMENT
Consumer markets report good growth in retail sales of diamond jewellery during
the first half of 2004 compared with the same period last year, which was
affected by war in the Middle East and the SARS virus. The US dollar value of
global diamond jewellery sales is anticipated to be 7 to 8% higher during this
period. With positive macro-economic indicators and increased levels of
confidence, the trade is optimistic that the strong consumer demand will
continue through the second half and expectations are that retail sales for the
year as a whole will be comfortably ahead of 2003.
The strength of retail sales of diamond jewellery in the first half translated
into increased demand for polished diamonds from the cutting centres. Since the
end of 2003, polished stocks in the cutting centres have declined and, in most
categories, prices have risen. Cutting centre bank debt, at historically high
levels, has not increased since the beginning of the year and hopefully will
start to reduce during the second half.
Against that background, there was consistent demand for rough diamonds
throughout the period and sales by the Diamond Trading Company (DTC), the
marketing arm of De Beers, for the first six months of 2004 totalled US$2,983
million, 2.16% higher than the equivalent period in 2003. The DTC raised its
rough diamond prices on two occasions during the six months. The cumulative
effect of those increases, and those previously announced in 2003, means that
the DTC's rough prices for the first half of 2004 were, on average, 14% higher
than for the first half of 2003.
On 30 June, the Company took advantage of an early redemption clause attaching
to its 10% preference shares in issue and redeemed the maximum permissible
amount of US$214 million, or 25% of the total (see Note 3 below).
Headline earnings for the six months ended 30 June 2004 were US$424 million,
12.8% higher than for the first half of 2003. Diamond stocks reduced by nearly
US$400 million during the period and operating cash flow generated was US$870
million. This enabled the group to further reduce net interest bearing debt (now
including the preference shares) from US$1,762 million at 31 December 2003 to
US$1,169 million at 30 June 2004 and to reduce net gearing from 29% to 21%.
The board has declared an interim ordinary dividend of US$250 million in respect
of the year 2004, payable on 2 August 2004.
De Beers' older and more marginal mines in South Africa continue to struggle in
the current environment, and every effort is being made to seek further
efficiencies and cost reductions.
De Beers is pleased to have recently reached a settlement with the United States
Department of Justice, which resolves a long-standing case against the Company
relating to a charge concerning the price list for certain categories of
industrial diamonds in the early 1990s. In terms of the settlement, De Beers
agreed to pay a fine of US$10 million. The resolution is in accordance with De
Beers' stated commitment to be legally compliant throughout the world.
The current Jwaneng mining licence expires on 31 July 2004. Debswana Diamond
Company (Proprietary) Limited has lodged an application for the renewal of its
mining licence for a further period of 25 years. The Government of Botswana and
De Beers are currently discussing the terms of the renewal.
De Beers announces interim results as follows:
De Beers Societe Anonyme
Consolidated Income Statement
for the half-year ended 30 June 2004
(Abridged)
US Dollar millions
6 Months to 6 Months to 12 Months to
30 June 2004 30 June 2003 31 December 2003
(Note 1)
Diamond sales
-DTC 2 983 2 920 5 518
-Other 259 201 397
Trade investment and other income 373 258 656
3 615 3 379 6 571
Deduct:
Cost of sales 2 534 2 468 4 794
Depreciation and amortisation (Note 2) 160 128 294
Sorting and marketing 230 208 490
Exploration and research 72 64 147
Corporate expenses 34 23 52
Net diamond account 585 488 794
Deduct:
Net interest paid (Note 3) 55 97 144
Costs related to reorganisation and 17 5 22
restructuring
Income before taxation 513 386 628
Taxation 203 114 239
Income after taxation 310 272 389
Attributable to outside shareholders in 9 10 10
subsidiaries
Own earnings 301 262 379
Share of retained income of joint ventures 40 103 114
Total earnings 341 365 493
Costs of early debt redemption 95 95
Net earnings 341 270 398
Headline earnings reconciliation
Net earnings 341 270 398
Adjusted for :
Amortisation of intangible fixed assets 87 84 170
After tax surplus on realisation of fixed assets (4) (3) (3)
less provisions
Facility fees 25 25
Headline earnings 424 376 590
Cash available from operating activities 871 1 072 1 520
Ordinary dividends in respect of:
2002 - Final 124 124
2003 - Interim 250
2003 - Final 150
2004 - Interim 250
De Beers Societe Anonyme
Consolidated Balance Sheet
30 June 2004
(Abridged)
US Dollar millions
30 June 2004 30 June 2003 31 December 2003
(Note 1)
Ordinary Shareholders' interests 3 663 3 470 3 549
Outside shareholders' interests 124 109 115
Total shareholders' interests 3 787 3 579 3 664
Net interest bearing debt (Notes 3 & 4) 1 169 1 783 1 762
Other liabilities 1 489 1 211 1 517
6 445 6 573 6 943
Fixed assets 5 037 4 738 5 145
Investments and loans 51 49 53
Diamond stocks and other assets 1 357 1 786 1 745
6 445 6 573 6 943
Exchange rates US$ = Rand
- average 6.58 8.11 7.64
- period end 6.62 7.80 6.38
Notes and Comments
1. With effect from December 2003 Financial Statements have been
prepared in accordance with both International Financial Reporting Standards
("IFRS") and South African Statements of Generally Accepted Accounting Practice
("SA GAAP"). Accordingly, the comparative figures in respect of June 2003 have
been restated. The effect has been to increase other liabilities by US$180
million (before deferred tax of US$48 million), being the recognition of
actuarial deficits in pension funds, and to increase net earnings in that period
by US$ 5 million.
2. Amortisation amounting to US$72 million in respect of the
goodwill attributable to De Beers Consolidated Mines Limited and De Beers
Centenary AG has been expensed in the current period. US$144 million was
expensed during the year ended December 2003.
3. As a result of the early redemption referred to in the directors'
comment, the preference shares, with a value of US$642 million (2003: US$856
million) have been more appropriately reclassified as debt in the balance
sheets. The preference dividends, amounting to US$43 million (2003: US$43
million for June and US$86 million for December) have accordingly been
reclassified as interest paid in the respective income statements.
4. Cash has been offset against interest bearing debt.
Contacts:
De Beers London:
Lynette Hori +44 20 7430 3509/+44 7740 393260
De Beers South Africa
Nicola Wilson +27 11 374 7399/+27 83 299 5552
Visit the official De Beers group website for more information on the Company
and where you can view and download a selection of images - www.debeersgroup.com.
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