Financial effects and withdrawal of cautionary announcement
11 September 2006
Further to the announcements dated 28 February 2006,6 July 2006 and 31 August 2006 whereby ARM and Xstrata plc (“Xstrata”) announced the establishment of a major black controlled coal mining company and the exercise of an option to acquire a further 10% interest in Xstrata South Africa (Proprietary) Limited’s (“XSA”)coal business (together, “the transaction”), ARM announces that the financial effects arising on the retrospective application of the transaction, as required in terms of the Listings Requirements of the JSE Limited, have been finalised.
Financial effects statement
The table below has been prepared for illustrative purposes only and sets out the pro forma financial effects of the transaction. These financial effects are the responsibility of the directors of ARM and are based on the following:
the audited annual financial statements for the financial year ended 30 June 2006 for ARM;
an aggregation of the attributable results for XSA for the six months to 31 December 2005 as extracted from Xstrata’s audited financial statements for the year ended 31 December 2005 and the results for the six months to 30 June 2006 as extracted from Xstrata’s reviewed interim financial statements for the six months to 30 June 2006.
the transaction¹ Pro forma after
the transaction² ³ %
Basic earnings per share(cents) 293 269 (8%)
Headline earnings per share(cents) 225 201 (11%)
Fully diluted earnings per share(cents) 291 267 (8%)
Fully diluted headline earnings per share(cents) 223 200 (10%)
Net asset value per share(cents) 4,967 4,967 (0%)
Net tangible asset value per share(cents) 4,965 4,965 (0%)
The ‘before the transaction’ financial information has been extracted, without adjustment, from the ARM published audited results.
The ‘after the transaction’ financial information is based on the following:
ARM acquired 51% of the issued share capital of ARM Coal. ARM Coal will hold a 20% interest in the existing coal operations of XSA and a 51% interest in an unincorporated joint venture in respect of the Goedgevonden project. The transaction is with effect 1 July 2005 for earnings effects and 30 June 2006 for net asset value effects;
In terms of the debt facilitation provided by XSA, the debt of R4 billion attributable to the existing coal operations has an interest and capital repayment holiday of five years. Notwithstanding that this debt facilitation together with the application of the cash upstream principle enhances cash flows to ARM, accounting rules require that imputed interest on this debt be charged against income. This has a negative impact on attributable earnings;
ARM acquired a 10% interest in XSA’s coal business, excluding the Goedgevonden joint venture, save that no facilitation (relating to interest and capital standstill arrangements and the application of the cash upstream principle as more fully described in the announcement dated 28 February 2006) will be provided by XSA. The transaction is with effect 1 July 2005 for earnings effects and 30 June 2006 for net asset value effects;
In terms of the transaction ARM paid R800 million, which in the financial effects calculation is assumed to be financed out of borrowing facilities and net operating cash flows; and
The transaction has been accounted for as follows:
ARM Coal, in which ARM has a 51% shareholding, has been accounted for as an incorporated joint venture;
ARM Coal’s 20% interest in XSA has been accounted for as an associate;
ARM Coal’s 51% interest in the Goedgevonden joint venture has been accounted for as an unincorporated joint venture; and
ARM’s direct investment in XSA, in terms of the 10% option, has been accounted for as an associate.
Because of the retrospective nature of the unaudited pro forma financial effects, these financial effects do not appropriately reflect ARM’s financial position after the transaction and do not give an indication of ARM’s future earnings. In particular the financial effects calculation excludes an indication of the impact on attributable cash flows.
3. Withdrawal of cautionary
Shareholders of ARM are no longer required to exercise caution when trading in their securities. A further announcement will be made in due course as soon as the final transaction documents in relation to the 10% option have been signed.
11 September 2006