7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 9:15 pm Page fc1 ANGLO AMERICAN MEETING THE WORLD’S NEEDS ANNUAL REPORT 2004 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:23 am Page ifc2 HIGHLIGHTS OF 2004 • Record results: headline earnings(1) up 59% at $2,689 million; headline earnings per share up 57% at $1.88 • Total profit for the year up 83% at $2,913 million • Cash generation: EBITDA(2) up by $2.3 billion at $7.1 billion • Record Base and Ferrous Metals performances • $1.5 billion of projects successfully commissioned; $4.7 billion project pipeline on track • Ongoing optimisation of asset base: $2.1 billion of disposals, including Hudson Bay and stakes in Gold Fields and Terra. Minera Sur Andes and Kumba acquisitions performing well • Cost savings and efficiencies up 65% at $554 million • Final dividend increased by 31% to 51 US cents. Total dividend up 30% at 70 US cents over 2003 CONTENTS Financial highlights 01 Financial statements 46 Chairman’s questions and answers 02 Ore reserves and mineral resources 90 Chief executive’s statement 03 Production statistics 114 Financial review 06 Exchange rates and commodity prices 120 Directors’ report 19 Key financial data 121 Corporate governance 22 Summary by business segment 122 Remuneration report 28 Shareholder information 123 Statement of directors’ responsibilities 44 Other Anglo American publications 124 Independent auditors’ report 45 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:03 am Page 01 Anglo American plc Annual Report 2004 01 FINANCIAL HIGHLIGHTS $ million (unless otherwise stated) 2004 2003 Turnover including share of joint ventures and associates 31,795 24,909 Total operating profit 4,480 2,606 Total operating profit before operating exceptional items 4,572 2,892 Profit for the financial year 2,913 1,592 Headline earnings for the financial year(1) 2,689 1,694 Net operating assets(3) 37,601 29,709 EBITDA(2) 7,110 4,785 Net cash inflow from operating activities 4,773 3,184 Capital expenditure 3,129 3,025 Basic earnings per share ($): Profit for the financial year 2.03 1.13 Headline earnings for the financial year 1.88 1.20 Total dividend for the financial year (US cents per share) 70.0 54.0 SELECTED FINANCIAL DATA 123 47.5114 49.0125 51.0120 54.0188 70.0 4,688 4,647 4,792 4,785 7,110 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004 n Headline earnings per share EBITDA US$ million n Dividends per share US cents (1) Headline earnings are defined in note 12 to the financial statements. (2) EBITDA is operating profit before exceptional items, plus depreciation and amortisation in subsidiaries and share of EBITDA of joint ventures and associates. EBITDA is reconciled to net cash inflow from operating activities in the financial statements following the cash flow statement and statement of total recognised gains and losses. (3) Net operating assets are defined in note 2 to the financial statements. *Throughout this report 1999, 2000 and 2001 figures have been restated for FRS 19. Figures for the years 1999 to 2003 have been restated for UITF 38. Unless otherwise stated, throughout this report ‘$’ and ‘dollar’ denote US dollars. 7878v03_PH_Rp_FC-p27_020305.qxp 4/3/05 2:04 am Page 02 02 Anglo American plc Annual Report 2004 CHAIRMAN’S QUESTIONS AND ANSWERS Q. While the financial performance for 2004 was good, at the traditional ‘hard’ skills, but the board has identified do you feel that enough was done to strengthen the ‘people’ issues as a strategic priority and we are now fundamentals of the business? definitely moving in the right direction. A. Yes. Our earnings were strong but this was not purely a function of commodity prices. They reflect, for example, Q. What do you see as the non-financial highlights of 2004? the value adding nature of the acquisitions made over the A. I would highlight four. First, Anglo became a signatory to the last four years – especially Minera Sur Andes, Syktyvkar, UN Global Compact – the ten principles of which we fully Cerrejón – and the De Beers transaction. These have produced support – and made all the preparations to become a party a stronger and more balanced portfolio. Who, in the past, to the Voluntary Principles on Security and Human Rights. would have predicted the pre-eminence of Latin America Secondly, our work on HIV/AIDS continued to progress, in our 2004 earnings? Nor, in a year of ‘plenty’, have we with some 2,200 employees now on anti-retrovirals and rested on our laurels. We have realised a further $554 million an improved uptake of voluntary counselling and testing. in cost savings. Through the merger with Ashanti Goldfields, Thirdly, our innovative Socio-Economic Assessment Toolbox AngloGold’s resource base and growth prospects have been process had an enthusiastic take-up at site level, with some strengthened. Reorganisations within Anglo Platinum and 30 assessments already under way. Fourthly, we reorganised Paper and Packaging have been carried out. We launched a how we bring the strands of sustainable development drive to encourage innovation and greater entrepreneurialism. together and instituted a project to improve our calibration The fundamentals of the business are stronger than they of sustainable development risk. The benefits of these were 12 months ago. changes will come through during 2005. Q. Many of the opportunities which Anglo is examining are Q. You are closely identified with ‘sustainable development’ in ‘new geographies’. Do you think you are properly and ‘corporate responsibility’ – how would you answer equipped to manage the risks involved? those who say it is a peripheral issue or, as in the A. Actually, we have a strong project pipeline in very familiar recent Economist article, that business should just regions – southern Africa, South America, eastern Europe concentrate on profits for shareholders? and Australia. We are also looking at new geographies, A. Sustainable development is absolutely central to the future chiefly China, Russia and India, since each has the potential acceptability of our business and to its ongoing success and to be a major growth market as well as a significant profitability. Our businesses have high environmental and commodities producer. Our approach has been to become social impacts, many deplete a non-renewable (albeit generally involved, initially in a relatively limited way, while we seek recyclable) resource, and global concerns like climate change to better understand the risks of doing business in each. and HIV/AIDS are highly relevant to us. These issues The board is very supportive of this and believes it is one reflect upon our licence to operate, our sustainability as an of Anglo’s strengths. When I went to China, for example, investment, our ability to attract the most talented recruits I visited small Anglo businesses in quarrying and drilling and our acceptability to governments and communities. equipment and was briefed on three other potential Moreover, our ability to understand and address societal opportunities. Similarly, we held a stake in Syktyvkar in concerns is fundamental to our good name and the value Russia for five years before taking control. This gradualist of that reputation. approach gives us a better feel for the operating environment in new countries. Q. Are you concerned that other stakeholders, like governments and more assertive communities, Q. There was a controversy about Anglo’s judgement of want to increase their share of the profits from political risk in South Africa – where do things now your operations? stand on this? A. Every enterprise faces tensions around how rewards are A. The problem was never our perception of political risk – but shared – investors, employees, suppliers and customers all those of some people in the international capital markets. want their ‘fair share’. In the natural resources business These concerns are largely the legacy of the leaking of an there are more parties to the process. For much of the last early draft of the Mining Empowerment Charter in 2002. 30 years mining has been a value destroyer for investors. Confidence has been returning as this memory has receded Governments tend to overlook the lean times when and this will be given momentum by the successful proposing new or higher taxes in years like this. During conversion of ‘old order’ mineral rights. We remain committed 2005, Chile and South Africa are both planning to decide to South Africa and are strongly supportive of the agreed upon a royalty regime. Such taxes have implications for scorecard approach in the Mining Act and the need to deliver competitiveness, investment and employment. Some on it – hence our big continuing investment programme. communities feel they get a raw deal when fiscal benefits To an extent I can share the frustration of the South African are often only felt at a national level. We seek to improve government. It has pursued exemplary macro-economic the local development effects of our businesses but it is policies and deserves to have been rewarded with more important too for national governments to ensure that a foreign direct investment. proportion of tax revenues is shared with local people. Q. Anglo is used to thinking about physical assets, finance Q. Were there any major disappointments in 2004 – and technology. Are you as good at nurturing talent? if so, how do you intend to rectify them? A. I would like to thank our employees for their commitment in A. The increase in fatalities at our managed operations from 2004. During my site visits and at the centre I have been 44 to 49 was of course a major disappointment. There was impressed by the calibre of Anglo’s people. I like the fact a welcome further improvement in the lost time injury that we typically entrust most senior operational posts to frequency rate of 23%, but we are not prepared to be locally recruited managers.