De Beers Annual Results 2005
10 February, 2006
De Beers Société Anonyme (“Dbsa”) today reported headline earnings before class action payment for the year ended 31 December 2005 of US$824 million.
Anglo American plc (“AA plc”) arrives at its headline and underlying 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 underlying earnings of US$430 million for the year ended 31 December 2005 from its investment in DBI, as reconciled in the table below:
| Reconciliation of underlying earnings for the year ended 31 December 2005 | |
|---|---|
| US$ million | Total |
| DBI headline earnings before class action payment (100%) | 824 |
| Adjustments(1) | 34 |
| DBI underlying earnings before class action payment – AA plc basis (100%) | 858 |
| AA plc's 45% ordinary share interest | 386 |
| Income from preference shares | 44 |
| AA plc underlying earnings | 430 |
(1)Adjustments include unrealised gains and losses on non-hedge derivative instruments and the reclassification of the actuarial gains and losses booked to the income statement by Dbsa under the corridor mechanism of IAS19. As AA plc has early adopted the amended version of IAS19, this charge has been included in the deficit booked to reserves in prior years.
On 30 June 2005, Dbsa redeemed a second 25% of the preference shares originally in issue and on that date AA plc received US$175 million, representing 25% of its original US$701 million preference share interest. AA plc now holds US$350 million of preference shares in Dbsa.
In the year ended 31 December 2005, AA plc received a total of US$322 million in distributions from DBI, consisting of a US$90 million final dividend on ordinary shares relating to FY 2004, a US$68 million interim dividend on ordinary shares relating to FY 2005, US$26 million dividends representing the second payment on preference shares for 2004, interim dividends totalling US$26 million on preference shares for 2005, and a combined ordinary dividend and share premium repayment of $112 million relating to FY 2005.
In the year ended 31 December 2004, AA plc received a total of US$250 million in dividends from DBI, consisting of US$68 million dividends on ordinary shares relating to FY 2003, a US$112 million interim dividend on ordinary shares for 2004, US$35 million dividends representing the second US$35 million payment on preference shares for 2003, and interim dividends totalling US$35 million on preference shares for 2004.
| Reconciliation of underlying earnings for the year ended 31 December 2004 | |
|---|---|
| US$ million | Total |
| DBI headline earnings (100%) | 652 |
| Adjustments(1) | 3 |
| DBI underlying earnings – AA plc basis (100%) | 655 |
| AA plc's 48.65% ordinary share interest(2) | 319 |
| Income from preference shares | 61 |
| AA plc underlying earnings | 380 |
(1)Adjustments include the impact of IAS32 and IAS39 which applied to Dbsa in 2004, but have only been adopted by AA plc in 2005, as well as the reclassification of the actuarial gains and losses booked to the income statement by Dbsa under the corridor mechanism of IAS19.
(2)As a result of De Beers' partial interest in Debswana Diamond Company (Proprietary) Limited (one of the shareholders in DBI), AA plc accounted for an additional 3.65% of DBI's post-tax earnings attributable to ordinary shares. As previously announced, the Debswana interest in DBI was ceded to the Government of the Republic of Botswana as part of a renewal of De Beers' mining licences in Botswana, agreed on 20 December 2004. Accordingly, from this date AA plc no longer accounts for this additional 3.65% interest.
Underlying Earnings
In previous reporting periods the Group has reported Headline Earnings as its primary earnings measure, using the definition of Headline Earnings which is required to be disclosed by the Johannesburg Stock Exchange Limited ('JSE Ltd'), consistent with that given by the Institute of Investment Management and Research ('IIMR').[1]
Following the adoption of International Financial Reporting Standards, as well as consideration of other restrictions of the definition, the Group believes that an alternative measure would provide a clearer picture of the underlying performance of the Group.
Consequently, the Group has adopted 'Underlying Earnings' as its principal measure of earnings. Underlying Earnings is net profit attributable to equity shareholders, adjusted for the effect of special items and remeasurements, and any related tax and minority interests. Special items are those items of financial performance which the Group believes should be excluded from performance earnings, and principally relate to impairment and significant closure costs, exceptional legal provisions and profit or loss on disposals. Remeasurements include unrealised gains and losses on non-hedge derivative instruments that are recorded in the income statement, and foreign exchange gains and losses on US$ denominated De Beers preference shares held by a Rand functional subsidiary of the Group.
Headline Earnings and Headline EPS for the Group will also continue to be reported to comply with JSE Ltd listing requirements, and a full reconciliation will be provided between Underlying Earnings and Headline Earnings.
The above figures are unaudited.
[1]Statement of Investment Practice No. 1, September 1993.