Cash Flow, Net Debt and Financing Summary
Cash generated from operations in the period was lower than the previous year at $8.9 billion, due in part to a number of one-off cash benefits in 2007, including the receipt of the LionOre termination payment of $275 million, the one-off benefit of the sale of nickel inventory of $205 million and cash flows generated from the aluminium business unit, disposed in May 2007. Free cash flow reduced to $5 billion, due partly to higher sustaining capital expenditure of $1.7 billion, offset by lower interest and tax payments.
Income tax payments dropped by 41% from 2007 to $1.8 billion.
Expansionary capital expenditure rose to $3.2 billion. The cost of the acquisition of a 24.9% stake in Lonmin totalled $1,878 million, comprising the initial acquisition of 10.7% of Lonmin’s issued share capital at a price of £33 per share in August and the subsequent acquisition of a further 14.2% at an average price of £19.79 per share in October.
The acquisitions of Jubilee Mines, a Western Australian nickel producer, and Resource Pacific, owner of the Newpac underground coal mine in New South Wales, Australia were completed in the period with a total cash outlay of $3.6 billion.
During the year, Xstrata issued a three-tranche bond under its Euro Medium-Term Note Programme, comprising EUR750 million 5.875% guaranteed notes due 2011, EUR600 million 6.25% guaranteed notes due 2015 and £500 million 7.375% guaranteed notes due 2020. These bonds have been swapped into US dollars and to floating interest rates. The proceeds from the bond issues were used to refinance existing bank debt and further extend the Group’s debt maturity profile.
In October, as part of the discussions with relationship banks regarding the proposed acquisition of Lonmin and associated debt facilities, Xstrata secured a new $5 billion revolving debt facility with a syndicate of 15 banks to refinance existing debt and remove any significant refinancing obligation until 2011. In January 2009, the facility was subsequently increased by an additional $0.5 billion.
The Group now benefits from a comfortable debt maturity profile and significant headroom. Net debt increased by $4.7 billion to $16.3 billion, increasing gearing (defined as net debt to net debt plus equity) to 40% at the end of the year.
On 29 January, Xstrata announced a proposed 2 for 1 rights issue to raise approximately $5.9 billion. The successful completion of the rights issue will provide an appropriate capital structure, even in the event of a prolonged economic downturn, maintain the Group’s commitment to an investment grade balance sheet and will enable Xstrata to emerge from the current downturn in a strengthened position.
| Movement in net debt | ||
|---|---|---|
| $m |
Year ended 31.12.08 |
Year ended 31.12.07 |
| Cash generated from operations* | 8,888 | 11,046 |
| Net interest paid | (552) | (671) |
| Dividends received | 2 | 4 |
| Tax paid | (1,753) | (2,965) |
| Cash flow before capital expenditure | 6,585 | 7,414 |
| Sustaining capital expenditure | (1,650) | (1,432) |
| Disposals of fixed assets | 101 | 86 |
| Free cash flow | 5,036 | 6,068 |
| Expansionary capital expenditure | (3,200) | (1,430) |
| Cash flow before acquisitions | 1,836 | 4,638 |
| Purchase of investments | (155) | (41) |
| Purchase of share in associate | (1,878) | – |
| Purchase of subsidiaries and operations net of cash acquired | (3,654) | (2,130) |
| Sale of aluminium business, net of cash disposed | – | 1,120 |
| Other investing activities | 43 | (44) |
| Net cash flow before financing | (3,808) | 3,543 |
| Purchase of own shares | (525) | (14) |
| Equity capital management share buy-back | – | (518) |
| Sale and issue of own shares | 64 | 56 |
| Equity dividends paid | (499) | (443) |
| Dividends paid to minority interests | (221) | (485) |
| Redemption of minority interests | – | (22) |
| Debt acquired with operations | (14) | (301) |
| Redemption of convertible bonds | – | 202 |
| Reclassification from equity and liabilities to debt | – | (200) |
| Fair value adjustment to Canadian capital market notes | – | (113) |
| Payments from minority interests | 301 | 180 |
| Other non-cash movements | 20 | (70) |
| Movement in net debt | (4,682) | 1,815 |
| Net debt at the start of the year | (11,624) | (13,439) |
| Net debt at the end of the period | (16,306) | (11,624) |
- * Includes net termination payment from LionOre of $275 million in 2007
| Reconciliation of EBITDA to cash generated from operations | ||
|---|---|---|
| $m |
Year ended 31.12.08 |
Year ended 31.12.07 |
| EBITDA | 9,657 | 10,888 |
| Exceptional items | (125) | 275 |
| Discontinued operations | – | 120 |
| Share of results from associates | (12) | (15) |
| Share-based compensation plans | 6 | 103 |
| Increase in inventories | 167 | (652) |
| Increase in trade and other receivables | 868 | (348) |
| Increase in deferred stripping and other assets | (299) | (106) |
| Increase in trade and other payables | (640) | 562 |
| Accrual for capital expenditure | (273) | (10) |
| Movement in provisions and other non-cash items | (461) | 229 |
| Cash generated from operations | 8,888 | 11,046 |
| Net debt summary | ||
|---|---|---|
| $m |
As at 31.12.08 |
As at 31.12.07 |
| Cash | 1,156 | 1,148 |
| External borrowings | (17,352) | (12,640) |
| Finance leases | (110) | (132) |
| Net debt | (16,306) | (11,624) |
| Net debt to net debt plus equity | 40% | 32% |