2. Segmental Analysis

Operating segments

Xstrata's business is organised into five global commodity businesses and a technology business, each of which operates with a high degree of autonomy.

Management monitors the operating results of each business as stand alone entities. Segment performance is evaluated based on a number of measures including return on capital employed and operating profit before interest and tax. Finance income and costs, and income tax are managed on a group basis.

Transfer prices between business segments are set on an arms-length basis in a manner similar to transactions with third parties.

The following tables present revenue and profit information and certain asset and liability information regarding the Group's operating segments for the years ended 31 December 2009 and 2008.

For the year ended 31 December

US$m	Before exceptional items	Exceptional items	2009	Before exceptional items	Exceptional items	2008
Revenue
External parties:
Coal - Thermal	5,762	-	5,762	6,347	-	6,347
Coal - Coking	987	-	987	1,597	-	1,597
Coal	6,749	-	6,749	7,944	-	7,944
Ferroalloys	1,105	-	1,105	1,733	-	1,733
Platinum	200	-	200	269	-	269
Copper	9,223	-	9,223	11,464	-	11,464
Nickel	1,891	-	1,891	3,105	-	3,105
Zinc Lead	3,450	-	3,450	3,202	-	3,202
Technology	114	-	114	235	-	235
Revenue (continuing operations)	22,732	-	22,732	27,952	-	27,952

 

Profit before interest, taxation, depreciation and amortisation (EBITDA)
Coal - Thermal	2,325	350	2,675	3,148	11	3,159
Coal - Coking	430	-	430	1,022	-	1,022
Coal	2,755	350	3,105	4,170	11	4,181
Ferroalloys	15	(11)	4	959	-	959
Platinum	55	-	55	135	8	143
Copper	2,922	154	3,076	3,160	-	3,160
Nickel	427	(40)	387	816	(165)	651
Zinc Lead	860	(65)	795	435	(53)	382
Technology	28	-	28	38	-	38
Segment EBITDA (continuing operations)	7,062	388	7,450	9,713	(199)	9,514
Unallocated	(274)	-	(274)	(68)	-	(68)
Operating EBITDA (continuing operations)	6,788	388	7,176	9,645	(199)	9,446
Share of results from associates (net of tax, continuing operations):
Coal	3	-	3	3	-	3
Platinum	(58)	(277)	(335)	-	(34)	(34)
Zinc Lead	(1)	-	(1)	9	-	9
Total	6,732	111	6,843	9,657	(233)	9,424

 

Segmental Analysis continued

US$m	Before exceptional items	Exceptional items	2009	Before exceptional items	Exceptional items	2008
Depreciation and amortisation
Coal	717	-	717	624	-	624
Ferroalloys	62	-	62	52	-	52
Platinum	31	-	31	35	-	35
Copper	796	-	796	863	-	863
Nickel	445	-	445	475	-	475
Zinc Lead	354	-	354	331	-	331
Technology	6	-	6	6	-	6
Depreciation and amortisation (continuing operations)	2,411	-	2,411	2,386	-	2,386
Unallocated	8	-	8	10	-	10
Total	2,419	-	2,419	2,396	-	2,396
Impairment of assets
Ferroalloys	-	-	-	-	18	18
Copper	-	325	325	-	463	463
Nickel	-	2,110	2,110	-	475	475
Zinc Lead	-	118	118	-	18	18
Total	-	2,553	2,553	-	974	974
Profit before interest and taxation (EBIT)
Coal - Thermal	1,695	350	2,045	2,616	11	2,627
Coal - Coking	343	-	343	930	-	930
Coal	2,038	350	2,388	3,546	11	3,557
Ferroalloys	(47)	(11)	(58)	907	(18)	889
Platinum	24	-	24	100	8	108
Copper	2,126	(171)	1,955	2,297	(463)	1,834
Nickel	(18)	(2,150)	(2,168)	341	(640)	(299)
Zinc Lead	506	(183)	323	104	(71)	33
Technology	22	-	22	32	-	32
Segment EBIT (continuing operations)	4,651	(2,165)	2,486	7,327	(1,173)	6,154
Unallocated	(282)	-	(282)	(78)	-	(78)
Operating profit	4,369	(2,165)	2,204	7,249	(1,173)	6,076
Share of results from associates (net of tax, continuing operations):
Coal	3	-	3	3	-	3
Platinum	(58)	(277)	(335)	-	(34)	(34)
Zinc Lead	(1)	-	(1)	9	-	9
EBIT (continuing operations)	4,313	(2,442)	1,871	7,261	(1,207)	6,054
Finance income	407	47	454	192	69	261
Finance expense	(754)	(41)	(795)	(852)	(295)	(1,147)
Profit before taxation	3,966	(2,436)	1,530	6,601	(1,433)	5,168
Income tax (expense)/benefit	(993)	324	(669)	(1,634)	330	(1,304)
Profit/(loss) for the year	2,973	(2,112)	861	4,967	(1,103)	3,864

 

Segmental Analysis continued

US$m	At 31.12.09	At 31.12.08
Total assets
Coal	17,341	11,998
Ferroalloys	1,612	1,421
Platinum	3,742	3,430
Copper	20,603	18,050
Iron Ore	23	-
Nickel	11,788	12,422
Zinc Lead	7,179	6,661
Technology	133	124
Total assets (from continuing operations)	62,421	54,106
Unallocated*	1,190	1,208
Total assets	63,611	55,314
Total liabilities
Coal	4,165	3,750
Ferroalloys	444	459
Platinum	403	313
Copper	4,693	3,768
Nickel	2,773	2,965
Zinc Lead	1,639	1,431
Technology	69	65
Total liabilities (from continuing operations)	14,186	12,751
Unallocated*	14,506	18,164
Total	28,692	30,915
Net assets
Coal	13,176	8,248
Ferroalloys	1,168	962
Platinum	3,339	3,117
Copper	15,910	14,282
Iron Ore	23	-
Nickel	9,015	9,457
Zinc Lead	5,540	5,230
Technology	64	59
Net assets (from continuing operations)	48,235	41,355
Unallocated*	(13,316)	(16,956)
Total	34,919	24,399

*     Includes corporate assets not directly attributable to business segments.

 

 

 

US$m	2009	2008
Capital expenditure
Sustaining:
Coal	424	459
Ferroalloys	102	95
Platinum	12	6
Copper	498	557
Nickel	93	267
Zinc Lead	133	278
Technology	2	3
Total sustaining (continuing operations)	1,264	1,665
Unallocated	1	9
Total	1,265	1,674
Expansionary:
Coal	687	745
Ferroalloys	1	13
Platinum	48	108
Copper	436	558
Iron Ore	23	-
Nickel	1,049	1,645
Zinc Lead	114	377
Technology	1	3
Total	2,359	3,449
Total capital expenditure:
Coal	1,111	1,204
Ferroalloys	103	108
Platinum	60	114
Copper	934	1,115
Iron Ore	23	-
Nickel	1,142	1,912
Zinc Lead	247	655
Technology	3	6
Total (from continuing operations)	3,623	5,114
Unallocated	1	9
Total	3,624	5,123

 

 

3. Earnings Per Share

US$m	2009	2008*
Profit before exceptional items attributable to ordinary equity holders of the parent	2,773	4,698
Exceptional items	(2,112)	(1,103)
Profit attributable to ordinary equity holders of the parent	661	3,595
Interest in respect of convertible borrowings	19	19
Profit attributable to ordinary equity holders of the parent for diluted earnings per share	680	3,614
Total operations:
Profit before exceptional items attributable to ordinary equity holders of the parent	2,773	4,698
Exceptional items	(2,112)	(1,103)
Profit attributable to ordinary equity holders of the parent	661	3,595
Interest in respect of convertible borrowings	19	19
Profit attributable to ordinary equity holders of the parent for diluted earnings per share	680	3,614
Weighted average number of shares (000) excluding own shares:
For basic earnings per share	2,646,871	1,693,504
Effect of dilution:
- Shared based payments	26,525	10,995
- Convertible borrowings	25,680	25,680
For diluted earnings per share	2,699,076	1,730,179

*     The 2008 comparative earnings per share have been restated after applying a rights issue bonus factor of 0.57.

On 18 March 2009, 1,955,341,080 ordinary shares were issued under a rights issue which was structured as an issue of 2 new ordinary shares at a price of GBP2.10 per share for every 1 existing ordinary share held. The theoretical ex-rights price for an ordinary share was GBP3.41. The 2008 comparative earnings per share have been restated after applying a factor of 0.57 in order to adjust for the bonus element of the rights issue and the 2009 figures have also been adjusted for this bonus element.

Basic earnings per share is calculated by dividing the net profit for the year attributable to the equity holders of the parent company by the weighted average number of ordinary shares outstanding for the year, excluding own shares. Adjustments are made for continuing and discontinued operations and before exceptional items and after exceptional items as outlined above, to present a meaningful basis for analysis.

Diluted earnings per share is based on basic earnings per share adjusted for the potential dilution if Director and employee free shares and share options are exercised and the convertible bonds are converted into ordinary shares. An adjustment is also made to net profit for the interest in respect of the convertible borrowings.

4. Dividends Paid and Proposed

US$m	2009	2008*
Declared and paid during the year:
Final dividend for 2008 - nil cents per ordinary share (2007  - 19.2 cents per ordinary share)	-	327
Interim dividend for 2009 - nil cents per ordinary share (2008 - 10.2 cents per ordinary share)	-	172
	-	499
Proposed for approval at the Annual General Meeting (not recognised as a liability as at 31 December):
Final dividend for 2009 - 8.0 cents per ordinary share (2008 - nil cents per ordinary share)	233	-

*     The 2008 comparative dividends per share have been restated after applying a rights issue bonus factor of 0.57.

 

 

5. Exceptional items

Impairment of assets

2009

The Group completed impairment testing for all its cash-generating units at 31 October 2009 and, for any assets where indicators of impairment were identified in November or December, performed updated testing at 31 December 2009. As a result of this testing impairments were identified at certain locations. Nickel assets in Australia, Canada and Norway were impaired by US$2,110 million (US$1,884 million after tax), including goodwill of US$710 million, following the restructuring of its business (refer below). Copper and zinc assets in Canada were impaired by US$273 million (US$194 million after tax), following the announcement on 8 December 2009, that the Kidd Metallurgical site will permanently cease the operation of its copper and zinc metallurgical plants on 1 May 2010, as part of a plan to restructure its Canadian metallurgical operations (refer below). The Altonorte copper operations in Chile recognised impairment charges against their carrying value of property, plant and equipment assets of US$170 million (US$141 million after tax) due to the ongoing challenging market conditions for custom smelting operations.

2008

The Group completed impairment testing for all its cash-generating units at 31 December 2008 and identified that certain assets were impaired. Ferroalloys minerals reserves were impaired by US$18 million. The Falcondo ferronickel assets in the Dominican Republic were impaired by US$455 million (US$315 million after tax), including goodwill of US$176 million, and the Sudbury nickel assets were impaired by US$20 million. The impairment charge relating to Falcondo follows the decision to place the operation on prolonged care and maintenance. The Kidd Creek copper operations in Canada were impaired by US$227 million (US$151 million after tax) following a re-evaluation of closure and rehabilitation costs. The Altonorte and Lomas Bayas copper operations in Chile recognised impairment charges against their carrying value of property, plant and equipment assets of US$92 million (US$76 million after tax) and US$144 million (US$122 million after tax), including goodwill of US$37 million, respectively. These impairment charges were mainly caused by weaker domestic demand for sulphuric acid and medium-term environmental capital expenditure requirements. The Lennard Shelf zinc joint venture assets were impaired by US$18 million. A net impairment charge of US$34 million was recorded in respect of the Group's investment in Lonmin following the changes in foreign exchange rates and commodity price outlook that have occurred since the acquisition date.

Inventory write downs

In 2008, Nickel inventory net realisable value write downs of US$93 million were recognised due to reduced prices at year end.

Liability fair value adjustment

The Group is required to recognise a liability at fair value representing African Rainbow Minerals Limited (ARM) Coal's interest in Xstrata's South African coal operations. During the year a gain of US$350 million has been recognised mainly due to the impact of decreasing coal prices and foreign exchange movements. In 2008 a loss of US$194 million was recognised mainly due to the impact of increasing coal prices on the fair value of the liabilities to ARM and the black empowerment disposal to Kagiso of an interest in the Mototolo Joint venture.

Profit on loss of control of joint venture

In October 2009, the Group entered into an irrevocable sale agreement to dispose of the Group's 70% interest in El Morro SCM, the holder of the El Morro copper-gold project in Chile, and associated rights and assets, to Barrick Gold Corporation for a total cash consideration of US$465 million. The agreement granted New Gold Incorporated a right of first refusal on the same terms as those granted to Barrick Gold Corporation.  The terms of the agreement were such that Xstrata was obliged to sell the assets to Barrick Gold Corporation or (should it exercise its option) New Gold Incorporated, without any change to the terms or cash consideration. Xstrata lost joint control of El Morro upon entering into the sale agreement as a result of the contractual terms in the agreement which precluded Xstrata from making any decisions regarding El Morro's financial and operating policies. In January 2010 New Gold Incorporated notified the Group of its intention to exercise its right of first refusal to acquire Xstrata Copper's interest in the El Morro copper-gold. The Group recognised a gain of US$194 million (US$144 million after tax) as a result of entering into the sale agreement and the resulting loss of joint control of the asset.

Profit on restructure of joint venture

In 2008 a gain of US$213 million was recognised in relation to the restructure of the Group's interest in the Douglas Tavistock Joint Venture.

Restructuring and closure costs

During 2009, restructuring and closure costs of US$156 million (US$116 million after tax) were recognised. Xstrata Nickel recognised restructuring and closure costs of US$40 million which included the closure of high-cost, end-of-life mines in Sudbury, the suspension of the Montcalm operations, significant reductions in operational and corporate overheads and the deferral of the Fraser Morgan and Sinclair Underground growth projects.   Restructuring and closure costs of US$105 million were recognised in relation to the planned closure of the Kidd metallurgical plant scheduled for 1 May 2010 mainly due to global smelting overcapacity, record low treatment and refining charges, increasing operating and capital costs to run and maintain the facilities and lower demand and sales prices for sulphuric acid. Restructuring and closure costs of $11 million were also incurred during the year in Ferroalloys. 

During 2008, asset write downs and closure costs of US$125 million (US$101 million after tax) were recognised, including the closure of the Lennard Shelf zinc joint venture in Australia (US$53 million), corporate office downsizing (US$8 million), the suspension of operations at the Falcondo ferronickel operations in the Dominican Republic (US$12 million) and the closure of Craig and Thayer-Lindsley nickel mines (US$52 million) ahead of schedule to be replaced by the new, lower cost Nickel Rim South and Fraser Morgan mines in Canada.

Share of results from associates

During 2009, an impairment charge of US$241 million (2008 US$34 million) was recorded in respect of the Group's investment in Lonmin following changes in foreign exchange rates, operating costs, production and commodity price outlook that have occurred since the acquisition date. An amount of US$36 million was also recognised during 2009 in relation to the Group's share of the restructuring and closure costs, impairments and the loss on forward exchange contracts in respect of a rights issue recognised by Lonmin.

Income tax benefit

The Group realised an exceptional tax benefit of US$324 million (2008 US$330 million) primarily as a result of the impairment of assets, restructuring and closure costs and inventory write downs offset by the tax expense recognised on the loss of control of El Morro.

6. Finance income

US$m	2009	2008
Continuing operations:
Bank and interest received from third parties	46	65
Call option premium	208	-
Dividends	1	2
Earnings from other financial assets	146	-
Hedge ineffectiveness	-	45
Other	6	80
Finance income before exceptional items from continuing operations	407	192
Foreign currency gains on bank loans*	-	20
Gain on forward exchange contracts in respect of the rights issue	47	-
Recycled gains from the foreign currency translation reserve	-	49
Exceptional finance income from continuing operations	47	69
Total finance income	454	261

*     These amounts relate to foreign currency gains on non-US$ borrowings, predominantly Canadian dollar borrowings.

7. Finance costs

US$m	2009	2008
Continuing operations:
Amortisation of loan issue costs	5	9
Convertible borrowings amortised cost charge	4	4
Discount unwinding	100	109
Finance charges payable under finance leases and hire purchase contracts	6	6
Interest on bank loans and overdrafts	89	288
Interest on convertible borrowings and capital market notes	295	393
Interest on non-controlling interest loans	6	6
Interest on other financial liabilities	12	19
Interest on preference shares	-	15
Hedge ineffectiveness	17	-
Foreign currency losses on other loans*	182	-
Other	38	3
Finance cost before exceptional items from continuing operations	754	852
Recycled losses from the foreign currency translation reserve	-	295
Loan issue costs written-off on facility refinancing	41	-
Exceptional finance cost from continuing operations	41	295
Total finance cost	795	1,147

*     These amounts mainly relate to foreign currency losses on US dollar inter-company loans in Australian entities.

 

8. Income tax charge

Significant components of income tax expense for the years ended:

US$m	2009	2008
Consolidated income statement
Current tax:
Based on taxable income of the current year	1,093	1,702
Prior year under/(over) provision	(72)	29
Total current taxation charge for the year	1,021	1,731
Deferred taxation:
Origination and reversal of temporary differences	(549)	(398)
Change in tax rates	(9)	(37)
Deferred tax expense arising from the write-down, or reversal of a previous write-down, of a deferred tax asset	149	-
Prior year under provision	57	8
Total deferred taxation charge for the year	(352)	(427)
Total taxation charge	669	1,304

The amounts above include the tax charge attributable to exceptional items.

9. Investment in Associates

Lonmin plc

In August 2008, the Group acquired 16,706,481 shares in Lonmin plc for US$1,084 million. In October 2008 the Group acquired an additional 22,232,940 shares for US$794 million, resulting in a total acquisition price of US$1,878 million. The August 2008 and October 2008 transactions have been separately accounted for under IFRS. Following the October 2008 transaction, the Group held 24.9% of Lonmin plc and determined it was an associate of the Group. Lonmin plc which is listed on the London Stock Exchange is one of the world's largest platinum producers with operations principally in South Africa. In June 2009, the Group acquired 8,653,204 shares in Lonmin plc for US$112 million as part of a 2 for 9 Rights Issue of 35.1 million new ordinary shares at GBP9.00 per new share for shareholders on the London Stock Exchange and at ZAR113.04 per new share for shareholders on the Johannesburg Stock Exchange.

The share price of Lonmin as listed on the London stock exchange at 31 December 2009 was GBP19.59 per share (2008 GBP9.11 per share). The Group believes that the recoverable amount of the investment using the VIU method was higher than the value based on the listed share price at that date because this share price continues to reflect ongoing significant uncertainty and volatility in world economic markets as opposed to the fundamental long-term value of this investment. However, during the year the Group recognised a net exceptional impairment charge of US$241 million (2008 US$34 million) after determining the recoverable amount of the investment was lower than the carrying amount.

10. Other Financial Assets

Investment in operations

Following shareholder approval, the Group acquired 100% of the Prodeco Colombian coal operations (Prodeco) from Glencore International AG (Glencore) on 3 March 2009 for a net cost of US$2 billion and the rights to Prodeco's earnings from 1 January 2009. The Group agreed to grant Glencore a call option to repurchase Prodeco, on any business day up to 4 March 2010, for US$2.25 billion, plus/minus the net cash paid to/ received from Prodeco and all profits of Prodeco accrued but not distributed to the Group. The profits of Prodeco are recognised as finance income in the period earned and the call option premium is included in finance income proportionately over the life of the option. If Glencore do not exercise the call option, Prodeco will be consolidated as a fully owned subsidiary from the date the option lapses.

11. Capital and Reserves

Issue of ordinary shares

On 18 March 2009, 1,955,341,080 ordinary shares were issued under a rights issue which was structured as an issue of 2 new ordinary shares at a price of GBP2.10 per share for every 1 existing ordinary share held. The net proceeds from the rights issue were US$5,667 million (after US$126 million of capital raising costs) and the number of shares in issue of Xstrata plc following the completion of the rights issue was 2,933,011,620.

On 17 December 2009, 6,000,000 shares were issued to the ESOP at a market price of GBP10.47 per share.

On 16 January 2008, 6,000,000 shares were issued to the ESOP at a market price of GBP34.90 per share.

During 2008, 0.03% of the US$375 million of convertible borrowings was converted at the option of the holders into 3,620 ordinary shares in Xstrata plc.

12. Interest-bearing Loans and Borrowings

US$m	2009	2008
Current:
At amortised cost:
Bank overdrafts	12	11
Bank loans - other unsecured	46	84
Capital market notes	97	593
Non-controlling interest loans	5	17
Preference shares	-	64
Obligations under finance leases and hire purchase contracts	46	25
	206	794
Non-current:
At amortised cost:
Syndicated bank loans - unsecured	3,827	6,974
Bank loans - other unsecured	174	221
Capital market notes	8,924	8,913
Non-controlling interest loans	81	81
Obligations under finance leases and hire purchase contracts	135	85
Other loans	111	63
	13,252	16,337
Non-current:
At amortised cost:
Convertible borrowings	335	331
Total	13,793	17,462
Less cash and cash equivalents	(1,177)	(1,156)
Net debt excluding hedges*	12,616	16,306
Hedges**	(326)	(280)
Net debt including hedges*	12,290	16,026

*     Net debt is defined as loans and borrowings net of cash and cash equivalents.

**    Derivative financial instruments that have been used to provide an economic hedge of capital market notes have been included above to reflect a more accurate overall net debt position of the Group at year end.

 

For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents comprise the following at 31 December:

US$m	2009	2008
Cash at bank and in hand	670	720
Short-term deposits	507	436
Bank overdrafts	(12)	(11)
	1,165	1,145