Operating results
3.6 Operating results
During FY2008, we adopted the policy of recognising our proportionate interests in the assets, liabilities, revenues and expenses of jointly controlled entities. All such interests were previously equity accounted. Full details of the impact of this change in policy may be found in note 1 ‘Accounting policies’ in the financial statements. Results for FY2007 and FY2006 have been restated on the same basis.
3.6.1 Consolidated results
Year ended 30 June 2008 compared with year ended 30 June 2007
We have achieved another year of record earnings, driven by excellent operating performance, cost control and the delivery of high-margin growth projects into strong market conditions.
Annual production records were set in seven commodities and production increased in a further six commodities. Strong volume growth has allowed us to capture the benefits of very high prices. Most of the records were set in consecutive years, as we reaped the benefit of our drive to deliver consistent, predictable and sustainable performance across all of our businesses. This provides a stable platform as we continue to develop and deliver world-class projects that are expected to add significant shareholder value.
Our strong performance demonstrates the power of our uniquely diversified and high-margin portfolio across the energy, steelmaking and non-ferrous product suites. This performance also reflects the success of our unrelenting focus on our strategy to create lasting shareholder value by owning and operating a diversified portfolio of upstream, large, long-life, low-cost, expandable, export-oriented assets.
Our profit attributable to members of BHP Billiton of US$15.4 billion represents an increase of 14.7 per cent over the prior year. Attributable profit excluding exceptional items of US$15.4 billion represents an increase of 12.4 per cent over FY2007. It is our seventh consecutive record annual result, with record Underlying EBIT generated by the Petroleum, Base Metals, Iron Ore, Manganese and Energy Coal CSGs.
Revenue was US$59.5 billion, up 25.3 per cent from US$47.5 billion in the corresponding period.
On 18 August 2008, the Board declared a final dividend of 41.0 US cents per share, thus bringing the total dividends declared for FY2008 to 70.0 US cents per share. During the year, 96,904,086 shares, or 1.7 per cent of the issued share capital of the Group, were repurchased. Capital management initiatives are discussed in section 3.7.6 of this Report.
Year ended 30 June 2007 compared with year ended 30 June 2006
Our profit attributable to members of BHP Billiton of US$13.4 billion represented an increase of 28.4 per cent over FY2006. Attributable profit excluding exceptional items of US$13.7 billion represented an increase of 34.7 per cent over FY2006. Revenue was US$47.5 billion, up 21.4 per cent from US$39.1 billion in FY2006.
On 22 August 2007, the Board declared a final dividend of 27.0 US cents per share, bringing the total dividends declared for FY2007 to 47.0 US cents per share. During FY2007, we announced US$13 billion of capital management initiatives. Under that initiative, 287,820,269 shares, or 4.8 per cent of the issued share capital of the Group, were repurchased, at an approximate average price of US$20.26.
Underlying EBIT
In discussing the operating results of our business, we focus on a non-GAAP (IFRS or US) financial measure we refer to as ‘Underlying EBIT’. Underlying EBIT is the key measure that management uses internally to assess the performance of our business, make decisions on the allocation of resources and assess operational management. Management uses this measure because financing structures and tax regimes differ across our assets, and substantial components of our tax and interest charges are levied at a Group, rather than an operational, level. Underlying EBIT is calculated as earnings before interest and taxation (EBIT), which is referred to as ‘profit from operations’ on the face of the income statement, excluding the effects of exceptional items.
We exclude exceptional items from Underlying EBIT in order to enhance the comparability of the measure from period to period and provide clarity into the underlying performance of our operations. Our management monitors exceptional items separately.
Underlying EBIT is not a measure that is recognised under IFRS and it may differ from similarly titled measures reported by other companies.
The following table reconciles Underlying EBIT to profit from operations for the years ended 30 June 2008, 2007 and 2006.
| Year ended 30 June | 2008 US$M | 2007 US$M | 2006 US$M |
|---|---|---|---|
| Underlying EBIT | 24,282 | 20,067 | 15,277 |
| Exceptional items (before taxation) | (137) | (343) | 439 |
| Profit from operations (EBIT) | 24,145 | 19,724 | 15,716 |
The following tables and commentary describe the approximate impact of the principal factors that affected Underlying EBIT for FY2008 and FY2007.
| US$M | US$M | |
|---|---|---|
| Year ended 30 June 2007 | 20,067 | |
| Change in volumes | ||
| - Increase in volumes | 805 | |
| - Decrease in volumes | (596) | |
| - New operations | 1,619 | |
| 1,828 | ||
| Net price impact | ||
| - Change in sales prices | 6,693 | |
| - Price-linked costs | (134) | |
| 6,559 | ||
| Change in costs | ||
| - Costs (rate and usage) | (1,183) | |
| - Exchange rates | (1,133) | |
| - Inflation on costs | (532) | |
| (2,848) | ||
| Asset sales | 28 | |
| Ceased and sold operations | (154) | |
| Exploration and business development | (404) | |
| Other | (794) | |
| Year ended 30 June 2008 | 24,282 |
| US$M | US$M | |
|---|---|---|
| Year ended 30 June 2006 | 15,277 | |
| Change in volumes: | ||
| - Increase in volumes | 438 | |
| - Decrease in volumes | (220) | |
| - New operations | 368 | |
| 586 | ||
| Net price impact: | ||
| - Change in sales price | 7,101 | |
| - Price-linked costs | (979) | |
| 6,122 | ||
| Change in costs: | ||
| - Cost (rate and usage) | (859) | |
| - Exchange rates | (271) | |
| - Inflation on costs | (416) | |
| (1,546) | ||
| Asset sales | (61) | |
| Ceased and sold operations | (198) | |
| Exploration and business development | (149) | |
| Other | 36 | |
| Year ended 30 June 2007 | 20,067 |
Year ended 30 June 2008 compared with year ended 30 June 2007
Profit from operations (EBIT) for FY2008 was US$24.1 billion compared with US$19.7 billion in FY2007, an increase of 22.4 per cent. Underlying EBIT for FY2008 was US$24.3 billion compared with US$20.1 billion, an increase of 21.0 per cent.
Base Metals, Iron Ore, Manganese and Energy Coal had record Underlying EBIT at a time when prices were high, reflecting strong demand. In Petroleum, newly commissioned projects in fiscally stable regimes, 93.8 per cent operational up time and record high oil prices led to record Underlying EBIT. The following commentary details the approximate impact of the principal factors that affected EBIT and Underlying EBIT for FY2008 and FY2007.
Volumes
Strong volume growth reflected our commitment to deliver more product, more quickly to our customers. During the year we delivered strong growth in sales volumes, allowing us to take advantage of continued strong customer demand.
Newly commissioned petroleum projects and the continued ramp-up of the Spence (Chile) and Pinto Valley copper projects contributed US$1,619 million to Underlying EBIT.
Higher sales volumes of copper, iron ore, manganese ore, energy coal, diamonds, alumina, and aluminium increased Underlying EBIT by US$805 million. This was partially offset by lower nickel and metallurgical coal volumes, as well as oil and gas volumes from existing operations.
Prices
Net changes in price increased Underlying EBIT by US$6,693 million (excluding the impact of newly commissioned projects). This was due to higher iron ore, oil, manganese, energy coal and base metals prices. Additional detail on the effect of price changes appears in the Customer Sector Group summary in section 3.6.2.
Higher price-linked costs reduced Underlying EBIT by US$134 million primarily due to higher royalties and LME-linked costs in the aluminium business. This was offset by decreased charges for third party nickel ore and more favourable rates for copper treatment and refining charges (TCRCs).
Costs
Strong global demand for resources continues to provide cost challenges for the whole industry. This is mainly due to shortages of skilled labour and rising prices for other inputs such as diesel, coke and explosives. However, our world-class orebodies, strong supplier relationships, systems and capabilities of our people have provided some relief against cost increases. In this environment, costs for the Group have increased by US$1,183 million.
Approximately US$575 million of the increase in costs was due to higher fuel, energy and raw materials costs. Severe weather interruptions in Queensland also had an adverse cost impact. Other areas of cost increase include labour and contractor charges and shipping and freight costs. Our continued focus on the ‘Business Excellence’ improvement program has delivered US$225 million of cost reductions.
Exchange rates
Exchange rate movements had a negative impact on Underlying EBIT of US$1,133 million. All Australian operations were adversely impacted by the stronger Australian dollar, which reduced Underlying EBIT by US$986 million. The appreciation of South American currencies against the US dollar also adversely impacted Underlying EBIT by US$158 million.
Average and closing exchange rates for FY2008 and FY2007 are detailed in note 1 to the financial statements.
Inflation on costs
Inflationary pressures on input costs across all our businesses had an unfavourable impact on Underlying EBIT of US$532 million. These pressures were most evident in Australia and South Africa.
Asset sales
The sale of assets increased Underlying EBIT by US$28 million. This was mainly due to the sale of the Elouera mine (Illawarra Coal, Australia) and other Queensland Coal (Australia) mining leases. Asset sales in the corresponding period included the sale of one million tonnes of annual capacity at the Richards Bay Coal Terminal (South Africa), Moranbah Coal Bed Methane assets (Australia), the Koornfontein energy coal mine (South Africa) and the interest in Eyesizwe coal mine in South Africa.
Ceased and sold operations
The unfavourable impact of US$154 million was mainly due to lower insurance recoveries and movements in the closure and rehabilitation provisions for closed operations in the corresponding period.
Exploration and business development
We continued to focus on finding new long-term growth options for our business. Exploration expense was US$906 million during the year, an increase of US$284 million. We increased activity on nickel targets in Western Australia, Guatemala, Indonesia and the Philippines, on diamond targets in Angola and iron ore targets in Western Australia. The main expenditure for the Petroleum CSG was on targets in the Gulf of Mexico, Colombia and Australia.
Expenditure on business development was US$119 million higher than last year, mainly due to the pre-feasibility study on the Olympic Dam expansion along with earlier stage activities in Base Metals and Iron Ore.
Other
Other items decreased Underlying EBIT by US$794 million. The start-up of operations at Ravensthorpe and the Yabulu Expansion Project (both Australia) adversely impacted earnings by US$313 million and contribution from third party trading was US$458 million lower compared to last year.
Year ended 30 June 2007 compared with year ended 30 June 2006
Profit from operations (EBIT) for FY2007 was US$19.7 billion compared with US$15.7 billion in FY2006, an increase of 25.5 per cent. Underlying EBIT for FY2007 was US$20.1 billion compared with US$15.3 billion, an increase of 31.4 per cent.
The increase in EBIT and Underlying EBIT was due primarily to higher commodity prices. Nickel, copper, aluminium, iron ore and petroleum product prices contributed significantly to the increase in revenue and Underlying EBIT. The following commentary details the approximate impact of the principal factors that affected EBIT and Underlying EBIT for FY2007 compared with FY2006.
Volumes
Continued strong demand underpinned increased sales volumes of metallurgical coal, petroleum products, nickel, manganese ore, alumina, zinc, iron ore, aluminium and energy coal, which contributed approximately US$438 million more (measured at FY2006’s average margins) to Underlying EBIT than in FY2006. Sales volumes of base metals were lower at Olympic Dam (Australia) due to a smelter shutdown and at Cannington (Australia) due to the temporary closure of the southern zone. However, this was more than offset by copper sales from Spence (Chile), which commenced operations in December 2006, and added US$363 million, and the ramp-up of the Sulphide Leach project at Escondida (Chile). We experienced a decrease in diamond sales for the year as a result of inventory sales in FY2006.
Prices
Net changes in prices increased Underlying EBIT by US$7,101 million. Lower prices for metallurgical coal and manganese ore had a negative impact. Additional detail on the effect of price changes appears in the Customer Sector Group summary in section 3.6.2.
Higher price-linked costs reduced Underlying EBIT by US$979 million with increased charges for third party nickel contributing US$658 million to this amount. Higher royalties for nickel, iron ore, and higher LME-linked power charges in aluminium were offset by lower metallurgical coal royalties (in line with lower prices) and more favourable rates for copper TCRCs, including the removal or limiting of price participation in new contracts.
Costs
Continued strong global demand for resources led to increased costs across the industry for labour, contractors, raw materials, fuel, energy and other input costs. In addition, port congestion and other third party infrastructure constraints resulted in increased demurrage costs and shipping, freight and other distribution charges. In this environment, our costs increased by US$859 million in FY2007 compared to FY2006.
Specific areas of cost increases include labour and contractor charges, consumables and fuels, business development expenditure, maintenance and other operating costs. Changed mining conditions, particularly at Cannington where we had a temporary closure of the southern zone and higher strip ratios at Queensland Coal (Australia), had a negative impact. However, we generated savings of US$203 million on our 2006 cost base through a wide range of business improvement initiatives across the Group.
Exchange rates
Exchange rate movements had a negative impact on Underlying EBIT of US$271 million. The stronger Australian dollar had a negative impact of US$478 million. This was partially offset by the favourable impact of a weaker South African rand on operating costs for our South African businesses. The Western Australian Iron Ore and Queensland Coal operations were both significantly impacted by the strength of the Australian dollar.
Average and closing exchange rates for FY2007 and FY2006 are detailed in note 1 to the financial statements.
Inflation on costs
Inflationary pressures on input costs across all of our businesses had an unfavourable impact on Underlying EBIT of US$416 million. These pressures were most evident in Australia and South Africa.
Asset sales
The sale of assets and interests decreased Underlying EBIT by US$61 million compared to FY2006. FY2007 was principally impacted by the sale of one million tonnes of annual capacity at the Richards Bay Coal Terminal (South Africa), the Moranbah Coal Bed Methane assets (Australia), the Koornfontein energy coal mine (South Africa), the interest in Eyesizwe (South Africa) and Alliance Copper (Chile). In FY2006, we had higher profits arising largely from the divestment of our interest in the Wonderkop chrome joint venture (South Africa), the Vincent Van Gogh undeveloped oil discovery (Australia) and the Green Canyon oil fields (US).
Ceased and sold operations
FY2007 was negatively impacted by the loss of US$343 million of Underlying EBIT from Tintaya (Peru) (divested in June 2006) and the Southern Cross Fertiliser operations (Australia) (divested in August 2006). This was partly offset by a US$82 million year-on-year impact of movements in closure and rehabilitation provisions for closed operations.
Exploration and business development
Gross exploration expenditure increased to US$805 million during FY2007. We increased activity on nickel targets in Western Australia, Guatemala, Indonesia and the Philippines and on energy coal targets in New South Wales (Australia). This increased expenditure, however, was offset by a higher level of capitalisation of oil and gas exploration expenditure, primarily in Australia. This resulted in exploration expense being US$17 million lower than in FY2006.
Expenditure on business development was US$166 million higher than in FY2006 mainly due to the pre-feasibility study on the Olympic Dam expansion and other Base Metals activities.
Other
Other items increased Underlying EBIT by US$36 million. These included higher insurance recoveries than inFY2006, partially offset by a lower contribution from freight and other activities.
Net finance costs
Year ended 30 June 2008 compared with year ended 30 June 2007
Net finance costs increased to US$662 million, from US$512 million in the corresponding period. This was driven predominantly by lower capitalised interest and foreign exchange impacts.
Year ended 30 June 2007 compared with year ended 30 June 2006
Net finance costs decreased to US$512 million, from US$600 million in FY2006. This was driven predominantly by higher capitalised interest, partially offset by higher average interest rates and foreign exchange impacts.
Taxation expense
Year ended 30 June 2008 compared with year ended 30 June 2007
The total taxation expense on profit before tax was US$7,521 million, representing an effective rate of 32.0 per cent (calculated as total taxation expense divided by profit before taxation).
Excluding the impacts of royalty-related taxation, non-tax-effected foreign currency adjustments, translation of tax balances and other functional currency translation adjustments and exceptional items, the underlying effective tax rate was 30.4 per cent, compared to the UK and Australian statutory tax rate (28 and 30 per cent respectively). Royalty-related taxation represents an effective rate of 3.1 per cent for the current period.
Year ended 30 June 2007 compared with year ended 30 June 2006
The total taxation expense on profit before tax was US$5,716 million, representing an effective rate of 29.8 per cent (calculated as total taxation expense divided by profit before taxation).
When compared to the UK and Australian statutory tax rate (30 per cent), the effective tax rate included a benefit of 2.2 per cent due to the impact of foreign exchange and other translation adjustments (US$395 million), and a benefit of 1.4 per cent due to the recognition of prior year US tax benefits (US$282 million). Royalty-related taxation represented an effective rate of 2.1 per cent for FY2007.
Exceptional items
Year ended 30 June 2008
Tax losses incurred by WMC Resources Ltd (WMC), acquired by BHP Billiton in June 2005, were not recognised as a deferred tax asset at acquisition pending a ruling application to the Australian Taxation Office. A ruling was issued during the year confirming the availability of those losses. This has resulted in the recognition of a deferred tax asset (US$197 million) and a consequential adjustment to deferred tax liabilities (US$38 million) through income tax expense at current Australian dollar/US dollar exchange rates. As a further consequence the Group has recognised an expense of US$137 million for a corresponding reduction in goodwill measured at the Australian dollar/US dollar exchange rate at the date of acquisition. Refer to note 5 ‘Exceptional items’ in the financial statements for more information.
Year ended 30 June 2007
Impairment of South African coal operations -- As part of our regular review of asset carrying values, a charge of US$176 million (before a taxation benefit of US$34 million) was recorded in relation to coal operations in South Africa.
Newcastle Steelworks rehabilitation -- We recognised a charge of US$167 million (before a taxation benefit of US$50 million) for additional rehabilitation obligations in respect of former operations at the Newcastle Steelworks (Australia). The increase in obligations related to increases in the volume of sediment in the Hunter River requiring remediation and treatment and increases in treatment costs.
Year ended 30 June 2006
Sale of Tintaya -- During June 2006, we sold our interest in the Tintaya copper mine in Peru (Base Metals). Gross consideration received was US$853 million before deducting intercompany trade balances. The net consideration of US$717 million (net of transaction costs) included US$634 million for shares plus the assumption of US$116 million of debt, working capital adjustments and deferred payments contingent upon future copper prices and production volumes. The profit on disposal was US$439 million (before a taxation charge of US$143 million).
3.6.2 Customer Sector Group summary
The following table provides a summary of the Customer Sector Group revenues and results for FY2008 and the two prior corresponding periods.
Revenues: (1)
| Year ended 30 June US$M | 2008 | 2007 | 2006 |
|---|---|---|---|
| Petroleum | 9,547 | 5,885 | 5,230 |
| Aluminium | 5,746 | 5,879 | 5,084 |
| Base Metals | 14,774 | 12,635 | 10,294 |
| Diamonds and Specialty Products | 969 | 893 | 1,263 |
| Stainless Steel Materials | 5,088 | 6,901 | 2,955 |
| Iron Ore | 9,455 | 5,524 | 4,782 |
| Manganese | 2,912 | 1,244 | 1,037 |
| Metallurgical Coal | 3,941 | 3,769 | 3,941 |
| Energy Coal | 6,560 | 4,576 | 3,965 |
| Group and unallocated items (2)(3) | 481 | 167 | 548 |
| BHP Billiton Group | 59,473 | 47,473 | 39,099 |
Results: (1)
| Year ended 30 June | 2008 | 2007 | 2006 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| US$M | Profit from operations (EBIT) | Adjustments in arriving at Underlying EBIT | Underlying EBIT | Profit from operations (EBIT) | Adjustments in arriving at Underlying EBIT | Underlying EBIT | Profit from operations (EBIT) | Adjustments in arriving at Underlying EBIT | Underlying EBIT |
| Petroleum | 5,489 | 5,489 | 3,014 | 3,014 | 2,968 | 2,968 | |||
| Aluminium | 1,465 | 1,465 | 1,856 | 1,856 | 1,186 | 1,186 | |||
| Base Metals | 7,890 | 99 | 7,989 | 6,875 | 6,875 | 5,873 | (439) | 5,434 | |
| Diamonds and Specialty Products | 189 | 189 | 197 | 197 | 287 | 287 | |||
| Stainless Steel Materials | 1,237 | 38 | 1,275 | 3,675 | 3,675 | 878 | 878 | ||
| Iron Ore | 4,631 | 4,631 | 2,728 | 2,728 | 2,533 | 2,533 | |||
| Manganese | 1,644 | 1,644 | 253 | 253 | 132 | 132 | |||
| Metallurgical Coal | 937 | 937 | 1,247 | 1,247 | 1,834 | 1,834 | |||
| Energy Coal | 1,057 | 1,057 | 305 | 176 | 481 | 326 | 326 | ||
| Group and unallocated items (2)(3) | (394) | (394) | (426) | 167 | (259) | (301) | (301) | ||
| BHP Billiton Group | 24,145 | 137 | 24,282 | 19,724 | 343 | 20,067 | 15,716 | (439) | 15,277 |
- Includes the sale of third party product.
- Exploration and technology activities, which were previously recognised as part of Group and unallocated items, are now recognised within relevant segments as a result of a change in management responsibilities over such activities. This change in segment reporting has been reflected in all periods presented.
- Includes consolidation adjustments, unallocated items and external sales from the Group's freight, transport and logistics operations and certain closed operations.
The changes in revenue, profit from operations (EBIT) and Underlying EBIT are discussed below. The changes in the non-GAAP measure of Underlying EBIT, also apply to the GAAP measure except where noted.
Petroleum
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$9,547 million for FY2008, an increase of US$3,662 million, or 62.2 per cent over the corresponding period. This was mainly due to higher average realised prices for petroleum products.
Total production for FY2008 was 129.5 million barrels of oil equivalent (boe) compared with total production in the corresponding period of 116.2 million boe. Strong growth in production was achieved due to the newly commissioned Stybarrow (Australia), Genghis Khan and Atlantis (both US), excellent operated performance and record natural gas volumes. Ramp up of these projects and future growth options will continue to increase the weighting of high margin liquids in our portfolio mix.
Both EBIT and Underlying EBIT were US$5,489 million, an increase of US$2,475 million, or 82.1 per cent over the corresponding period. There were no exceptional items in the current or prior period. The increase was due mainly to higher average realised prices for petroleum products, with higher average realised oil prices per barrel of US$96.27 (compared with US$63.87), higher average realised natural gas prices of US$3.87 per thousand standard cubic feet (compared with US$3.19) and higher average realised prices for liquefied natural gas of US$8.95 per thousand standard cubic feet (compared with US$6.97).
Gross expenditure on exploration was US$692 million, US$297 million higher than last year. Exploration expenditure charged to profit was US$359 million, including US$47 million of previously capitalised expenditure. During the year, we successfully captured significant acreage in the Gulf of Mexico lease sale process, made the large Thebe gas discovery (offshore Australia) and continued to build a solid portfolio of opportunities with seismic data acquired in Colombia, Malaysia, Falklands, Australia and the deepwater Gulf of Mexico.
In addition, for the second consecutive year we achieved greater than 100 per cent reserve replacement.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$5,885 million for FY2007, an increase of US$655 million, or 12.5 per cent over FY2006. This was mainly due to higher average realised prices for most petroleum products.
Total production for FY2007 was 116.2 million barrels of oil equivalent (boe) compared with total production in FY2006 of 117.4 million boe. During the year, we acquired a 44 per cent interest in the Genghis Khan oil and gas field. This development, together with Atlantis and Neptune (both Gulf of Mexico), commenced producing in FY2008, significantly increasing petroleum production.
Both EBIT and Underlying EBIT were US$3,014 million, an increase of US$46 million, or 1.5 per cent, compared to FY2006. There were no exceptional items in FY2007 or FY2006. The increase was due mainly to higher average realised prices for most petroleum products, with higher average realised oil prices per barrel of US$63.87 (compared with US$61.90), higher average realised prices for liquefied natural gas of US$6.97 per thousand standard cubic feet (compared with US$6.76), and higher average realised prices forliquefied petroleum gas of US$529.96 per tonne (compared to US$483.74 per tonne). This was partially offset by lower average realised natural gas prices of US$3.19 per thousand standard cubic feet (compared with US$3.33). The impact of foreign exchange (Australian dollar and UK pound sterling) and price-linked costs was unfavourable.
Gross expenditure on exploration of US$395 million was US$52 million lower than FY2006. Exploration expenditure charged to profit was US$334 million, including US$82 million of previously capitalised expenditure.
Aluminium
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$5,746 million for FY2008, a decrease of US$133 million, or 2.3 per cent, over the corresponding period.
Full year production records were achieved at Worsley (Australia), Paranam (Suriname) and Alumar (Brazil) increasing total alumina production to 4,554,000 tonnes in the current period, from 4,460,000 tonnes in FY2007. However, southern African smelters operated at reduced levels to comply with the mandatory reduction in power consumption reducing aluminium smelter production from 1,340,000 tonnes in FY2007 to 1,298,000 tonnes in FY2008.
Underlying EBIT and EBIT were US$1,465 million, a decrease of US$391 million, or 21 per cent, over the corresponding period. Unfavourable exchange rate movements as a result of a weaker US dollar and foreign exchange gains in the prior period associated with the Alumar (Brazil) refinery expansion had a negative impact on Underlying EBIT. The average LME aluminium price of US$2,668 per tonne was in line with last year’s price of US$2,692 per tonne.
Underlying EBIT was adversely impacted by inflationary pressures and industry-wide cost escalation for energy and fuel, coke, pitch and caustic soda. The closure of Potlines B and C at Bayside also reduced Underlying EBIT. However an intensive focus on cost containment through various Business Excellence initiatives mitigated the full impact of cost increases.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$5,879 million for FY2007, an increase of US$795 million, or 15.6 per cent, over FY2006.
Aluminium smelter production decreased slightly from 1,362,000 tonnes in FY2006 to 1,340,000 tonnes in FY2007, while alumina production increased to 4.5 million tonnes in FY2007, from 4.2 million tonnes in FY2006. Full year production records were achieved at Worsley (Australia), Paranam (Suriname) and Alumar (Brazil) refineries and the Hillside, Bayside and Mozal smelters (all southern Africa). The expansion at Worsley reached nameplate capacity in the fourth quarter.
Both EBIT and Underlying EBIT were US$1,856 million, an increase of US$670 million, or 56.5 per cent, compared with FY2006. There were no exceptional items in FY2007 or FY2006. Higher prices for aluminium and alumina had a favourable impact, with the average LME aluminium price increasing to US$2,692 per tonne (compared with US$2,244 per tonne in FY2006).
Favourable exchange rate movements as a result of a weaker rand and foreign exchange contracts associated with the Alumar refinery expansion increased Underlying EBIT. In FY2006 the write-down of our interest in Valesul to fair value, in line with the value achieved on its subsequent divestment, impacted Underlying EBIT unfavourably by US$50 million.
EBIT was adversely impacted by higher charges for electricity, depreciation, maintenance, raw materials and labour. Despite these higher costs, EBIT margins improved to 40 per cent (30 per cent in FY2006) and were at record levels. This improved translation of higher prices to the bottom line reflected an intensive focus on cost containment through various Business Excellence initiatives. The contribution from third party trading was lower than FY2006.
In April 2007, we announced the acquisition of a 33.3 per cent interest in Global Alumina’s refinery project in Guinea, West Africa. The project, which is known as the Guinea Alumina project, comprises the design, construction and operation of a 3.3 mtpa alumina refinery, a 10 mtpa bauxite mine and associated infrastructure.
Base Metals
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$14,774 million for FY2008, an increase of US$2,139 million, or 16.9 per cent, over the corresponding period. This revenue increase was mainly attributable to higher LME prices for copper, lead, silver, and gold and higher volumes, primarily due to the ramp-up of Sulphide Leach and Spence.
Payable copper production increased by 10 per cent to 1.375 million tonnes compared with 1.250 million tonnes in the corresponding period. Zinc production was 144,490 tonnes, an increase of 21.7 per cent compared with the corresponding period. Attributable uranium production at Olympic Dam (Australia) was 4,144 tonnes for the period compared with 3,486 tonnes for the corresponding period. Silver production was 43.5 million ounces, an increase of 18.9 per cent compared with 36.6 million ounces in the corresponding period. Lead production was 253,126 tonnes, an increase of 19.2 per cent compared with the corresponding period.
A third consecutive record copper production, from continuing operations, was achieved with the continued ramp-up of Escondida Sulphide Leach and Spence (Chile), and the commissioning of Pinto Valley (USA). Higher volumes were also reported at Cannington as the rehabilitation of ground support was successfully completed during FY2007.
EBIT was US$7,890 million, an increase of US$1,015 million, or 14.8 per cent, over the corresponding period. FY2008 included an exceptional charge of US$99 million, being adjustments to the acquisition accounting for WMC arising from the finalisation of a ruling on tax losses by the Australian Taxation Office. Underlying EBIT was US$7,989 million, an increase of US$1,114 million, or 16.2 per cent, over the corresponding period. This increase was predominantly attributable to higher production of copper, silver, lead and zinc. Higher average LME prices for copper of US$3.53/lb (compared to US$3.21/lb) as well as higher prices for silver, lead, molybdenum and gold, offset by lower prices for zinc, also contributed to the Underlying EBIT increase. Lower Treatment and Refining Charges also positively impacted Underlying EBIT.
These gains were partially offset by higher costs during the period, mostly due to higher energy, shipping, fuel, acid and labour charges. The effect of inflation and the weaker US dollar against the Australian dollar and Chilean peso also impacted negatively. Higher costs were partially mitigated by cost reductions achieved through several Business Excellence projects. In addition, the Olympic Dam Expansion pre-feasibility study expenditures have increased as the project studies progress, also reducing earnings. Underlying EBIT was also adversely impacted by the purchase of third party uranium from the spot market to meet contractual requirements.
Provisional pricing of copper shipments, including the impact of finalisations and revaluations of the outstanding shipments, resulted in the calculated average realised price being US$3.62/lb versus an average LME price of US$3.53/lb. The average realised price was US$3.24/lb in the corresponding period. The positive impact of provisional pricing for the period was US$225 million. Outstanding copper volumes, subject to the fair value measurement, amounted to 327,941 tonnes at 30 June 2008. These were revalued at a weighted average price of US$8,555 per tonne or US$3.88/lb.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$12,635 million for FY2007, an increase of US$2,341 million, or 22.7 per cent, over FY2006.
Payable copper production decreased by 1.4 per cent to 1.250 million tonnes compared with 1.268 million tonnes in the corresponding period mainly due to the divestment of Tintaya in July 2006. Zinc production was 118,700 tonnes, an increase of 8.8 per cent compared with FY2006. Attributable uranium production at Olympic Dam (Australia) was 3,486 tonnes for the period compared with 3,936 tonnes for FY2006. Silver production was 36.6 million ounces, a decrease of 21.3 per cent compared with 46.5 million ounces in FY2006. Lead production was 210,800 tonnes, a decrease of 20.8 per cent compared with FY2006.
EBIT and Underlying EBIT were US$6,875 million. This was an increase of US$1,002 million or 17.1 per cent for EBIT, and an increase of US$1,441 million or 26.5 per cent for Underlying EBIT over FY2006. There were no exceptional items in FY2007. FY2006 included the profit of US$439 million (before tax) on the sale of Tintaya, which is shown as an exceptional item. This increase was predominantly attributable to higher average LME prices for copper of US$3.21/lb (compared to US$2.28/lb) as well as higher prices for silver, zinc, lead and gold.
Record copper cathode production from continuing operations was achieved due to the ramp up of the Sulphide Leach Project at Escondida, the commissioning of Spence (Chile) in December 2006 and the recovery at Cerro Colorado (Chile) following the earthquake. This was partly reduced by lower volumes at Olympic Dam because of a scheduled smelter shutdown, lower head grades and lower tonnes milled. Lower volumes were also reported at Cannington as the rehabilitation of ground support was successfully completed during the period.
These gains were partially offset by higher labour and contractor costs, higher price-linked costs at Antamina (Peru), higher fuel and energy charges and the impact of industrial activity at Escondida. Increased expenditure on the Cannington rehabilitation project, and the combined effect of inflation and the impact of a stronger Australian dollar/US dollar exchange rate also negatively impacted the result. Higher costs were partially mitigated by cost reductions achieved through several improvement projects. In addition, the Olympic Dam expansion pre-feasibility study expenditures increased as project studies progressed. The cessation of the contribution from Tintaya (Peru), which was sold in June 2006 also reduced Underlying EBIT.
Provisional pricing of copper shipments, including the impact of finalisations and revaluations of the outstanding shipments, resulted in the calculated average realised price being US$3.24/lb versus US$2.66/lb in FY2006. The positive impact of provisional pricing for FY2007 was US$108 million. Outstanding copper volumes, subject to the fair value measurement, amounted to 346,610 tonnes at 30 June 2007. These were revalued at a weighted average price of US$7,152 per tonne or US$3.24/lb.
Diamonds and Specialty Products
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$969 million for FY2008, an increase of US$76 million, or 8.5 per cent over the corresponding period predominantly due to higher realised diamond prices.
EKATI diamond production was 3,349,000 carats, an increase of 3.9 per cent compared with the corresponding period mainly reflecting the increasing underground production and variations in the mix of ore processed.
EBIT and Underlying EBIT were US$189 million, a decrease of US$8 million, or 4.1 per cent over the corresponding period. There were no exceptional items in the current or corresponding periods. Strong operating earnings at EKATI (Canada) resulted from higher realised diamond prices and lower unit costs mainly due to higher value per carat and higher grade underground production, tight cost control and improved plant recoveries. Higher earnings were offset by an increase in exploration and development expense of US$63 million for diamonds (Angola), potash (Canada) and titanium minerals (Mozambique) and unfavourable exchange rate movements for the Canadian dollar against the US dollar.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$893 million for FY2007, a decrease of US$370 million, or 29.3 per cent, compared with FY2006 predominantly due to the disposal of Southern Cross Fertilisers on 1 August 2006.
EKATI diamond production was 3,224,000 carats, an increase of 25.9 per cent compared with FY2006 mainly reflecting the increasing underground production and variations in the mix of ore processed.
EBIT and Underlying EBIT were US$197 million, a decrease of US$90 million, or 31.4 per cent, over FY2006. There were no exceptional items in FY2007 or FY2006. The reduction was due to lower sales volumes for diamonds (down 23 per cent following inventory sales in the prior year) and higher unit costs reflecting variations in the mix of ore processed. The cessation of earnings from the Southern Cross Fertiliser operation, which was sold effective 1 August 2006, also had a negative impact. This was partially offset by higher value per carat diamonds and good performance at Richards Bay Minerals (South Africa) with a firm market for metallic and zircon co-products.
Stainless Steel Materials
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$5,088 million in FY2008, a decrease of US$1,813 million, or 26.3 per cent, over the corresponding period.
Nickel production was 167,900 tonnes in the current period, a 10.3 per cent decrease from 187,200 tonnes in the corresponding period. Production for FY2008 was impacted by an industrial stoppage at Cerro Matoso (Colombia), wet weather interruptions at Yabulu (Australia) and scheduled maintenance across all operations. This was partially offset by strong production from the Kwinana Nickel Refinery (Australia) and the continued ramp-up of Ravensthorpe and the Yabulu Extension Project (both Australia). Towards the end of the fourth quarter of FY2008, Kalgoorlie Nickel Smelter (Australia) commenced a major rebuild of the furnace.
EBIT was US$1,237 million, a decrease of US$2,438 million, or 66.3 per cent, over the corresponding period. FY2008 included an exceptional charge of US$38 million, being adjustments to the acquisition accounting for WMC arising from the finalisation of a ruling on tax losses by the Australian Taxation Office. There were no exceptional items in the corresponding period. Underlying EBIT for FY2008 was US$1,275 million, a reduction of US$2,400 million, or 65.3 per cent, below last year. This was mainly due to the lower average LME price for nickel of US$13.00/lb compared with US$17.21/lb in the prior year. Lower prices (net of price-linked costs) reduced Underlying EBIT by US$1,021 million.
Higher operating costs had an adverse impact and were largely due to a strengthening Australian dollar and higher charges for fuel, energy and labour reflecting industry wide cost pressures. Costs were also impacted by the start-up of operations at Ravensthorpe and the Yabulu Extension Project, higher use of third party ore at Nickel West (Australia) and increased exploration activity in Australia, South America and Asia. In addition, sales volumes decreased reflecting lower production volumes as aforementioned.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$6,901 million in FY2007, an increase of US$3,946 million, or 133.5 per cent, over FY2006.
Nickel production was 187,200 tonnes in FY2007, a 6.5 per cent increase from 176,200 tonnes in FY2006. The record production was driven by strong performances at all operations and at Yabulu (Australia), in particular, where annual production increased by almost 40 per cent.
EBIT and Underlying EBIT were a record US$3,675 million, an increase of US$2,797 million, or 318.6 per cent, over FY2006. Higher nickel and cobalt prices were the main contributors with an average LME nickel price of US$17.21/lb (compared with US$7.03/lb). The higher prices (net of price-linked costs) added US$3,109 million to Underlying EBIT.
Higher use of third party ore at Nickel West and higher costs at the Yabulu and Kwinana refinery (all Australia) impacted Underlying EBIT negatively as did the impact of the stronger Australian dollar/US dollar exchange rate on operating costs at the Australian operations. In addition, Underlying EBIT was impacted by higher electricity and gas costs at Cerro Matoso (Colombia) and higher maintenance and depreciation costs at Yabulu.
Exploration expenditure was higher than FY2006 due to increased activity in Western Australia, Indonesia, the Philippines and Guatemala. FY2006 included a US$61 million profit on the sale of our interest in the Wonderkop joint venture (South Africa).
Iron Ore
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$9,455 million for FY2008, an increase of US$3,931 million, or 71.2 per cent over the corresponding period.
A consecutive eighth production record was achieved at our Western Australian iron ore operation, following the successful commissioning of RGP3 and other business improvement initiatives. Western Australian iron ore production was 103.8 million wet tonnes (tonnes) an increase of 12.2 million tonnes or 13.3% on the previous financial year. Samarco (Brazil) operations also achieved record production as a result of production efficiencies and commissioning of the third pellet plant. Production of Samarco pellets and pellet feed was 8.5 million tonnes, an increase of 8.5 per cent from 7.8 million tonnes in the corresponding period. Record sales volumes reflect shipping efficiency, the RGP3 ramp-up and improvement initiatives.
EBIT and Underlying EBIT were US$4,631 million, an increase of US$1,903 million, or 69.8 per cent over the corresponding period. This was driven by increased iron ore prices, higher sales volumes and higher priced spot sales.
Higher operating costs were largely attributable to the weaker US dollar against the Australian dollar and Brazilian real, higher price-linked costs, fuel, freight and demurrage. A number of cost saving initiatives in Western Australian iron ore operations such as negotiation of contract mining rates, strategic sourcing of input materials and services have partially mitigated the impact of external cost pressures on the business.
Depreciation was higher, due to the completion of our RGP3 project at Western Australia Iron Ore. This project was delivered on schedule and within budget in local currency.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue for FY2007 was US$5,524 million, an increase of US$742 million, or 15.5 per cent over FY2006.
Attributable Western Australia iron ore production was a record at 91.6 million wet tonnes, a slight increase compared to 89.6 million wet tonnes in FY2006. Production of Samarco (Brazil) pellets and pellet feed was 7.8 million tonnes, an increase of 4.0 per cent from 7.5 million tonnes in FY2006.
EBIT and Underlying EBIT were US$2,728 million up US$195 million, or 7.7 per cent, over FY2006. There were no exceptional items in either FY2007 or FY2006. The increase was driven mainly by increased prices, together with higher sales volumes.
Record sales reflected business improvement initiatives implemented to promote increased shipping efficiency.
Higher operating costs had an adverse impact during the period, largely attributable to the stronger Australian dollar/US dollar exchange rate, but also to higher contractor and labour costs, price-linked royalties, freight costs and demurrage. A number of initiatives were undertaken during the year to minimise the impact of external cost pressures on the business with the benefits mainly realised in the second six months of the year.
Depreciation was higher due to the commissioning of the expanded capacity at Western Australia Iron Ore.
Manganese
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$2,912 million for FY2008, an increase of US$1,668 million, or 134.1 per cent over the corresponding period.
Manganese alloy production at 775,000 tonnes was 5.9 per cent higher than the previous year mainly as a result of operating efficiencies at the alloy plants and reduced down time for major rebuilds. Production was slightly offset by Metalloys Plant (South Africa) operating at lower levels to comply with the mandatory reduction in power consumption. Manganese ore production was 6.6 million tonnes, an increase of 9.4 per cent compared to the corresponding period. Both were production records.
EBIT and Underlying EBIT were US$1,644 million, an increase of US$1,391 million, or 550 per cent, over the corresponding period. Stronger demand drove increased sales volumes of manganese ore and higher prices for manganese ore and manganese alloy.
The positive EBIT result was slightly offset by increased distribution costs, unfavourable exchange rate impacts and higher ore development, coke and labour costs. A portion of the increase in costs was deliberately incurred to maximise production to take advantage of the high prices.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue for FY2007 was US$1,244 million, an increase of US$207 million, or 20.0 per cent, over FY2006.
Manganese alloy production was 732,000 tonnes, an increase of 12.3 per cent, compared with FY2006 of 652,000 tonnes. Manganese ore production reached a record 6.0 million tonnes, an increase of 729,000 tonnes or 13.8 per cent, compared with FY2006.
EBIT and Underlying EBIT were US$253 million, an increase of US$121 million, or 91.7 per cent, over FY2006. Stronger demand drove increased sales volumes of manganese ore and higher prices for manganese alloy. The favourable movement of the rand against the US dollar also contributed to this positive result.
Operating costs were lower resulting from production efficiencies, but were partly offset by increased freight and distribution costs.
Metallurgical Coal
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$3,941 million for FY2008, an increase of US$172 million, or 4.6 per cent over the corresponding period.
Production was 35.2 million tonnes in the current period, a decrease of 8.3 per cent compared with 38.4 million tonnes in the corresponding period.
EBIT and Underlying EBIT were US$937 million, a decrease of US$310 million, or 24.9 per cent over the corresponding period. The decrease in Underlying EBIT was mainly due to the significant rainfall events in January and February 2008 which unfavourably impacted sales volumes at Queensland Coal (Australia). This was partially offset by an increase in volumes from the full year of production from the Poitrel (Australia) mine.
Costs attributable to the recovery from the rainfall events at Queensland Coal were approximately US$40 million in the period, with an additional US$80 million of cost inefficiencies associated with lower volumes. Recovery efforts continue and on average, mines are operating at approximately 90 per cent capacity.
Other operating costs were higher due to increased demurrage and labour costs which were offset by improved mining conditions and operating efficiencies at Illawarra Coal. A weaker US dollar against the Australian dollar and inflationary pressures also had an unfavourable impact on Underlying EBIT.
Higher average realised prices for metallurgical coal (three per cent) and thermal coal (52 per cent) had a favourable impact on the Underlying EBIT.
Profits on the sale of the Elouera mine and the sale of mining leases to Millennium were realised in the current period.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue was US$3,769 million for FY2007, a decrease of US$172 million, or 4.4 per cent over FY2006.
Production was 38.4 million tonnes in FY2007, a 7.8 per cent increase compared with 35.6 million tonnes in FY2006.
EBIT and Underlying EBIT were US$1,247 million, a decrease of US$587 million. This was attributable mostly to lower prices for hard coking coal (down 10 per cent) and weak coking coal (down 32 per cent). Higher sales volumes at Queensland Coal and Illawarra Coal (Australia) impacted Underlying EBIT. The increase in sales volume at Queensland Coal was supported by the expanded capacity at our Hay Point coal terminal. Royalties were lower due to lower prices.
Operating costs were higher at Queensland Coal following the start-up of the new longwall panel at the Broadmeadow mine (Australia) as were demurrage costs as a result of third party rail and port constraints. Difficult mining conditions and an extended longwall change-out at Illawarra Coal also increased operating costs. A stronger Australian dollar to US dollar exchange rate had an unfavourable impact across our operations, as did inflationary pressure.
Depreciation and amortisation charges were higher due to commissioning of new projects during the year, the write-off of the coal dryer at Dendrobium (Australia) and higher amortisation of deferred development costs at Illawarra Coal.
Energy Coal
Year ended 30 June 2008 compared with year ended 30 June 2007
Revenue was US$6,560 million for FY2008, an increase of US$1,984 million, or 43.4 per cent over the corresponding period.
Production was 80.9 million tonnes in FY2008, a decrease of 7.0 per cent compared with 87.0 million tonnes in the corresponding period.
EBIT was US$1,057 million, an increase of US$752 million, or 246.6 per cent, compared with last year. FY2007 included an exceptional item at our South African operations - a charge of US$176 million (before taxation benefit of US$34 million).
Underlying EBIT was US$1,057 million, an increase of US$576 million, or 119.8 per cent, over last year. The increase was mainly attributable to higher prices resulting from continued strong demand in the Atlantic and Pacific markets, record production at Hunter Valley Coal (Australia) and Cerrejón Coal (Colombia) and weakening of South African rand against the US dollar.
This was partially offset by higher costs due to inflationary pressures, weakening of US dollar against Australian dollar and Colombian peso, and increased diesel, labour and contractors, maintenance and demurrage costs. Lower earnings from trading activities also negatively impacted Underlying EBIT.
The purchase price adjustments associated with the sale of the Optimum asset (South Africa), and the cessation of contribution from the Koornfontein mine (South Africa) following its divestment last year also reduced Underlying EBIT. The comparative period included US$67 million profit on the sale of Koornfontein, Eyesizwe investment and part of our Richards Bay Coal Terminal entitlement.
Year ended 30 June 2007 compared with year ended 30 June 2006
Revenue for FY2007 was US$4,576 million, an increase of US$611 million, or 15.4 per cent, from FY2006.
Production was 87.0 million tonnes in FY2007, an increase of 1.5 per cent compared with 85.8 million tonnes in FY2006.
EBIT was US$305 million, a decrease of US$21 million, or 6.4 per cent, compared with FY2006. FY2007 included an exceptional item resulting from our regular review of asset carrying values at our South African operations - a charge of US$176 million (before taxation benefit of US$34 million). There were no exceptional items in FY2006.
Underlying EBIT was US$481 million, an increase of US$155 million, or 47.6 per cent, over FY2007. The increase was mainly attributable to higher export prices resulting from continued strong demand and a favourable movement of the South African rand against the US dollar. The profit on divestment of Koornfontein, one million tonnes of Richards Bay Coal Terminal annual capacity and the Eyesizwe investment increased Underlying EBIT.
Despite adverse weather conditions in the last quarter and high demurrage costs in Australia, Hunter Valley Coal achieved record production volumes as well as increased cost efficiencies. At Cerrejon Coal (Colombia) higher volumes also had a favourable impact on results. In South Africa, unit costs were adversely affected by inflationary pressure, a redundancy provision for the closure of the Douglas underground mine and lower production as a result of safety interventions and equipment availability.
The cessation of earnings from the Zululand Anthracite Colliery (South Africa) following its divestment during the prior year had a negative impact on the result.
Group and unallocated items
This category represents corporate activities, including Group Treasury, Freight, Transport and Logistics operations.
Year ended 30 June 2008 compared with year ended 30 June 2007
These corporate activities produced a loss before net finance costs and taxation of US$394 million in FY2008 compared to a loss of US$426 million in the corresponding period. FY2008 had no exceptional items whereas FY2007 included an exceptional item of US$167 million relating to rehabilitation obligations at the former Newcastle Steelworks operations.
Excluding exceptional items, corporate operating costs were US$394 million compared to US$259 million in the corresponding period, an increase of US$135 million. The higher costs resulted predominantly from unfavourable fluctuations in the Australian dollar to US dollar exchange rate. Higher costs for corporate projects and sponsorship also had an adverse impact.
Year ended 30 June 2007 compared with year ended 30 June 2006
These corporate activities produced a loss before net finance costs and taxation of US$426 million in FY2007 compared to a loss of US$301 million in FY2006. FY2007 includes an exceptional item of US$167 million (before tax of US$50 million) for additional rehabilitation obligations in respect of former operations at the Newcastle Steelworks.
Corporate operating costs, excluding exchange impacts, were US$231 million for FY2007 compared to US$251 million in FY2006, a decrease of US$20 million.
The current period benefited from lower insurance claims, offset by higher costs for corporate projects, sponsorships and regulatory compliance.
One-off costs in relation to the acquisition of WMC were incurred in FY2006. There were no similar costs in FY2007.
Third party sales
We differentiate sales of our production from sales of third party products due to the significant difference in profit margin earned on these sales. The table below shows the breakdown between our production (which includes marketing of equity production) and third party products.
| Year ended 30 June (a) | 2008 US$M | 2007 US$M | 2006 US$M |
|---|---|---|---|
| Group production | |||
| Revenue | 51,918 | 41,271 | 34,139 |
| Related operating costs | (27,389) | (21,621) | (18,534) |
| Operating profit | 24,529 | 19,650 | 15,605 |
| Margin (b) | 47.20% | 47.60% | 45.70% |
| Third party products | |||
| Revenue | 7,555 | 6,202 | 4,960 |
| Related operating costs | (7,939) | (6,128) | (4,849) |
| Operating (loss)/profit | (384) | 74 | 111 |
| Margin (b) | (5.10%) | 1.20% | 2.20% |
- Excluding exceptional items.
- Operating profit divided by revenue.
We engage in third party product trading for two reasons:
- In providing solutions for our customers, sometimes we provide products that we do not produce, such as a particular grade of coal. To meet customer needs and contractual commitments, we may buy physical product from third parties and manage risk through both the physical and financial markets.
- The active presence in the commodity markets provides us with physical market insight and commercial knowledge. From time to time, we actively engage in these markets in order to take commercial advantage of business opportunities. These trading activities provide not only a source of revenue, but also a further insight into planning, and can, in some cases, give rise to business development opportunities.