Commentary on the Group Interim Results

The first half of the 2006 financial year generated a strong result for BHP Billiton and today we have announced the fifth consecutive half year of record results for the Group. Attributable profit was US$4.4 billion, which is an increase of 47.8% over the same period last year. The consistent focus on the optimisation and growth of our portfolio of world class assets, combined with our unique customer centric marketing structure has positioned the company to actively participate in the current strong demand and price environment for our commodities. Half year operational records were also accomplished, with record production achieved for four major and two minor commodities.

Our strategy of investing throughout the cycle in sustainable, value creating growth continued, with five additional major growth projects approved in the period. These projects have an expected spend of US$2.9 billion, bringing our total project pipeline to US$14.4 billion of investment. (This includes 18 projects currently under development totalling US$8.9 billion.) Each of these projects has been subject to our rigorous evaluation and approval process to ensure they will return value to our shareholders, regardless of global economic conditions. However, we continue to be faced with industry challenges in the delivery of these projects to budget. These challenges include shortages of skilled labour, construction and drilling plant and machinery, and currency strength against the US dollar. All of these have led to rising input costs.

These pressures have also added significantly to operating costs. However, increased commodity prices and volumes, along with the continuation of our business excellence programme, has led to a Group Underlying EBIT margin and Return on Capital Employed of 41.9% and 31.2% respectively.

Integration of the WMC assets was completed during the period and the target for cost efficiencies (of A$115 million per annum) was exceeded. Record half year production was achieved at both the Nickel West and Southern Cross Fertiliser operations (both Australia), while drilling continues at Olympic Dam (Australia) in advance of the proposed expansion.

The Board today declared an interim dividend of 17.5 US cents per share. This follows on from the rebasing of the dividend in February 2005 from 9.5 US cents per share to 13.5 US cents per share. Today's declared dividend is an increase of 3.0 US cents per share (20.7%) over last year's final dividend of 14.5 US cents per share, or up 29.6% year on year. The interim dividend has increased by 118.8% (from 8.0 to 17.5 US cents per share) over the past 2 years, reflecting the strength of the underlying cash flows of the business, the continued strong pricing environment and confidence in our ability to consistently deliver earnings and cash flow to support this higher level of dividend going forward. We intend to continue with our progressive dividend policy, with further increases dependent upon the expectations for future investment opportunities and market conditions at the time of declaration.

We also intend to return a further US$2.0 billion to shareholders over the next 18 months through a series of share buy-backs. As outlined today in a separate announcement, this will commence immediately with an off-market buy-back of approximately A$1.5 billion (US$1.1billion) in BHP Billiton Limited shares. This will be followed at a later stage by on-market purchases, most likely of BHP Billiton Plc shares, using the balance of the US$2.0 billion not used in the off-market buy-back.

Today's announcement follows on from last year's US$2.0 billion capital management initiative and is consistent with our practice of returning surplus capital to shareholders where appropriate, and in a form that maximises the overall value to the Group and its shareholders. The Board remains committed to demonstrating strong capital discipline while ensuring BHP Billiton is able to finance its significant pipeline of growth opportunities regardless of short term commodity price movements. At the conclusion of this initiative, BHP Billiton will have returned US$11.4 billion to shareholders since June 2001.

The acquisition of WMC was completed on 2 August 2005 and financial results for the former WMC assets are reported separately in the Base Metals, Stainless Steel Materials and Diamonds and Specialty Products CSGs. In an environment of continued high prices, cash flow for the first six months has exceeded expectations.

At the time of the announcement to acquire WMC, BHP Billiton estimated that annual cost efficiencies of A$115 million would be achieved by eliminating duplicate functions and using common systems and processes. As at December 2005, on-going pre-tax cost efficiencies of A$160 million per annum plus A$14 million per annum in tax benefits are estimated to have been achieved. More than 430 people (including contractors) have left the organisation.

It is expected that final annualised cost efficiencies will exceed A$180 million plus A$14 million per annum in tax benefits. In total, we expect approximately 500 people (including contractors) to leave the organisation.

The final one-off cost to achieve these cost efficiencies is now estimated at A$103 million, compared to the A$120 million indicated at the time of the announcement to acquire WMC. The current period results include A$20 million of such costs and A$17 million are expected for the remainder of the 2006 financial year. A$66 million was expensed in the 2005 financial year.

BHP Billiton has adopted International Financial Reporting Standards (IFRS) from 1 July 2005, and has restated comparative amounts on a consistent basis. The measurement differences from previous GAAP are set out in note 15 of the Interim Financial Report. IFRS also has presentational differences from previous GAAP, including the treatment of income from jointly controlled entities, as noted below, and the treatment of royalty and petroleum related taxes of US$323 million (corresponding period US$375 million) which are presented as taxation, rather than operating costs.

The introduction of IFRS has led to us reporting Underlying EBIT, which is a measure used internally and in our Supplementary Information to reflect the underlying performance of BHP Billiton's operations. Underlying EBIT excludes all net finance costs and taxation, including net finance costs and taxation of jointly controlled entities and any significant one-off items. Under IFRS, these amounts are included in Profit from Operations in the Income Statement. The differences between Underlying EBIT and EBIT (Profit from operations) are set out in the following table:

There were no significant items in either the current or corresponding period.

Revenue (including revenue from third party product and our share of jointly controlled entities) was US$18.2 billion, up 19.5% from US$15.2 billion in the corresponding period. The increase was due primarily to higher commodity prices. Metallurgical coal, iron ore, base metals, and petroleum prices contributed significantly to the increase in revenue. We also experienced increased volumes from new and acquired operations.

Underlying EBITDA increased by 41.9% to US$8.0 billion (from US$5.6 billion in the corresponding period). Underlying EBIT was US$6.7 billion compared with US$4.7 billion for the same period last year, an increase of 43.0%.

The following table and commentary detail the approximate impact of the principal factors that affected Underlying EBIT for the current half year compared with the corresponding period:

Increased sales volumes of copper, iron ore and export thermal coal contributed approximately US$138 million to Underlying EBIT (measured at the prior period's average margins). Sales volumes of oil were lower than the corresponding period due to natural field decline, increased down time and the loss of production from the Typhoon/Boris facility (US). Decreased sales volumes of metallurgical coal due to increased mine maintenance activity, expansion tie-in activity at Hay Point Coal Terminal (Australia), and the depletion of reserves at Riverside (Australia) also had a negative impact. Decreased sales volumes of manganese ore in line with market demand also impacted the half year. Overall, sales volumes from existing operations decreased Underlying EBIT by US$110 million.

New operations increased Underlying EBIT by US$445 million, primarily due to a contribution of US$262 million from the WMC operations acquired in June 2005, and a full six months production from ROD (Algeria), which commenced commercial production in October 2004, and Mad Dog (US) and Angostura (Trinidad and Tobago) which were both commissioned in January 2005.

Stronger commodity prices for most products increased Underlying EBIT by US$2,915 million. Higher prices for metallurgical coal, iron ore, copper, petroleum products and aluminium contributed approximately US$3,077 million, which was partially offset by lower prices for manganese alloy, diamonds and lower export prices for energy coal at Ingwe (South Africa).

An increased level of activity across the resources industry has led to shortages and rising costs for labour and raw materials. This has led to increased costs for the Group of US$795 million.

A portion of the increase in costs was deliberately incurred by the Group to maximise production to capture current prices. Specific areas of cost increases include labour and contractor charges, fuel, freight and consumables, as well as maintenance and other operating costs. Depreciation charges also increased due to changes in the estimates of economic lives of certain operations and the commissioning of a number of new operations.

Exchange rate movements had a positive impact on Underlying EBIT of US$105 million compared with the same period from last year. The translation of net monetary liabilities had a favourable impact on Underlying EBIT of US$155 million principally due to exchange gains from the strengthening of the US dollar against the Australian dollar in the six months to 31 December 2005, compared to losses in the corresponding period. This was partly offset by an unfavourable impact of exchange rate movements on operating costs of US$50 million.

Higher price-linked costs decreased Underlying EBIT by US$275 million, primarily because of higher royalties being imposed for all Carbon Steel Material products and increased TCRCs, including price participation charges, for copper.

Inflationary pressures, mainly in South Africa and Australia, had an unfavourable impact on Underlying EBIT of US$130 million.

The net loss of earnings from ceased or sold operations had a US$35 million unfavourable impact on Underlying EBIT. Current period Underlying EBIT primarily excludes results from disposal of the Chrome business (South Africa) and the Laminaria and Corallina oil fields (Australia) totalling US$110 million. This was partly offset by a favourable impact of US$75 million in relation to care and maintenance costs incurred at Boodarie Iron (Australia) in the corresponding period. These were fully provided for in June 2005.

Exploration expense was US$90 million higher, due mainly to increased spend on petroleum activity in the Gulf of Mexico.

Other items decreased Underlying EBIT by US$54 million. These include one-off costs caused by hurricane activity in the Gulf of Mexico and freight activities. Partially offsetting these was an increase in the Underlying EBIT contribution from sales of third party product of US$80 million.

Net finance costs increased to US$215 million, from US$192 million in the corresponding period. This increase was driven largely by higher average debt balances following the funding of the acquisition of WMC in June 2005, partially offset by exchange gains on debt, higher capitalised interest and higher interest rates on deposits.

The taxation expense on profit before tax was US$1,616 million, representing an effective rate of 26.7%.

Excluding the impacts of royalty and petroleum resource related taxation and non tax-effected foreign currency adjustments, translation of tax balances and other functional currency translation adjustments, and including the taxation expense of jointly controlled entities, the underlying effective rate was 27.8%. When compared to the UK and Australian statutory tax rate (30%), the underlying effective tax rate benefited 2.7% due to the recognition of US tax losses (US$175 million).

Following the transition to IFRS, royalty and petroleum resource related taxes are treated as taxation arrangements when they have the characteristics of a tax. This is considered to be the case when they are imposed under Government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deductions) as determined by relevant legislation. As a result, such royalty costs which would previously have been reported as an operating cost in Underlying EBIT are now reported as a taxation expense. Obligations arising from royalty arrangements that do not satisfy these criteria continue to be recognised in operating expenses.

Statutory net operating cash flow after interest and tax increased by 34.8% to US$4.3 billion. This included increased cash generated from operating activities (mainly due to higher profits), which was partly offset by increased taxation payments.

Capital and exploration expenditure totalled US$2,665 million for the period. Expenditure on major growth projects amounted to US$1,482 million, including US$254 million on petroleum projects and US$1,228 million on minerals projects. Other capital expenditure was US$835 million. Investment cash flow was US$505 million, due mainly to the purchase of the remaining shares to complete the WMC acquisition. In addition, the corresponding period includes US$1.78 billion distributed to shareholders as part of the US$2.0 billion capital management programme.

Net debt, comprising cash and interest bearing liabilities, was US$8.7 billion, the same level as at 30 June 2005. Gearing, which is the ratio of net debt to net debt plus net assets, was 28.9% at 31 December 2005, compared with 32.7% at 30 June 2005.

Underlying net debt (which varies from net debt above as it includes net debt of jointly controlled entities) was US$9.9 billion, down from US$10.0 billion at 30 June 2005. Underlying gearing was 31.5% at 31 December 2005, compared to 35.8% at 30 June 2005.

In October 2005 BHP Billiton filed a US$3.0 billion shelf registration statement with the US Securities and Exchange Commission (SEC) and in December 2005, issued a SEC Global Bond comprising US$600 million of 5.00% Senior Notes due 2010 and US$750 million of 5.25% Senior Notes due 2015. The proceeds were used to partially repay the financing arranged to fund the WMC acquisition and to repay commercial paper.

An interim dividend for the half year ended 31 December 2005 of 17.5 US cents per share will be paid to shareholders on 22 March 2006.

The dividend paid by BHP Billiton Limited will be fully franked for Australian taxation purposes. Dividends for the BHP Billiton Group are determined and declared in US dollars.  However, BHP Billiton Limited dividends are mainly paid in Australian dollars. BHP Billiton Plc dividends are mainly paid in pounds sterling to shareholders on the UK section of the register and South African rands to shareholders on the South African section of the register.  The foreign currency exchange rates that applied two business days before the declaration of the dividend were used for conversion of currencies (detailed in the table below). As announced on 27 January, shareholders who wish to alter the currency in which they receive dividends must lodge an election form with the Share Registry at least two days prior to the announcement of the dividend.

The timetable in respect of this dividend will be:

Currency conversion - 13 February 2006

Last day to trade Johannesburg Stock Exchange (JSE) - 24 February 2006

Ex-dividend Australian Stock Exchange (ASX) - 27 February 2006

Ex-dividend Johannesburg Stock Exchange (JSE) - 27 February 2006

Ex-dividend London Stock Exchange (LSE) - 1 March 2006

Record - 3 March 2006

Payment - 22 March 2006

American Depositary Shares (ADSs) each represent two fully paid ordinary shares and receive dividends accordingly.

BHP Billiton Plc shareholders registered on the South African section of the register will not be able to dematerialise or rematerialise their shareholdings, and transfers between the UK register and the South African register will not be permitted, between the dates of 27 February 2006 and 3 March 2006.

The following table details the currency exchange rates applicable for the dividend:

Underlying EBIT was US$1,436 million, an increase of US$171 million or 13.5%, compared with the same period last year. This was mainly due to higher average realised prices for all petroleum products, including higher averaged realised oil prices per barrel of US$58.25 (compared with US$44.85), higher average realised natural gas prices of US$3.13 per thousand standard cubic feet (compared with US$2.94), and higher liquefied natural gas prices of US$6.81 per thousand standard cubic feet (compared to US$5.68). Production from ROD (Algeria), which commenced commercial production in October 2004, and Mad Dog (US) and Angostura (Trinidad and Tobago), which were both commissioned in January 2005, and a positive impact from foreign exchange movements also had a favourable impact.

These factors were partly offset by lower production volumes from existing operations. The corresponding period had also included a US$56 million profit on the sale of an equity participation in the North West Shelf Project's (Australia) gas reserves to China National Offshore Oil Corporation. Other unfavourable impacts included one-off costs for the investigation and salvage of the Typhoon facility (US) following hurricane damage and the loss of earnings following the divestment in the corresponding period of our interests in the Laminaria and Corallina (Australia) oil fields.

Exploration expenditure charged to profit was US$123 million (corresponding period: US$55 million) reflecting a capitalisation rate of 51.0% (corresponding period: 59.9%). Gross expenditure on exploration of US$251 million was US$114 million higher than the corresponding period as a result of increased spending on activity in the Gulf of Mexico.

Underlying EBIT of US$406 million fell US$43 million or 9.6% compared with the same period last year. This was mainly due to higher fuel, power and raw material costs (principally caustic soda), as well as increased pot relining costs. In addition, the application of IFRS required Aluminium to account for embedded derivatives which reduced Underlying EBIT by US$22 million in the current period. Higher realised prices for aluminium, and an improved result due to the unwinding of a metal take-off contract of US$35 million in the previous period partly offset this result. The average LME aluminium price increased to US$1,952 per tonne, compared with US$1,764 per tonne for the corresponding period.

Underlying EBIT was US$1,893 million, an increase of US$853 million, or 82.0% compared with the corresponding period. This was mainly as a result of higher average LME prices for all base metals products. In particular copper LME prices increased to US$1.84/lb compared with US$1.35/lb for the same period last year. The inclusion of Olympic Dam (Australia) results for the current period, following its acquisition in June 2005, also contributed positively. Higher sales volumes for all Base Metals products, but particularly for copper and molybdenum (in which record production levels were achieved during the period), also led to the higher EBIT result.

However, higher price-linked and input costs (mainly reflecting increased TCRC costs including price participation), higher statutory labour and production bonuses, and increased fuel and other commodity linked costs, all had an impact. Reduced production at Cerro Colorado (Chile) following an earthquake in June 2005 also had an unfavourable impact, although this was partially mitigated by business interruption insurance.

Underlying EBIT was US$2,275 million, up US$1,284 million or 129.6% from the corresponding period. Contributing factors included stronger commodity prices for iron ore and metallurgical coal, although manganese alloy prices were lower. Increased operating costs at most operations also affected Underlying EBIT. In particular this included price linked royalties and higher contractor and diesel costs, which are reflective of the current heated market conditions. Increased mining costs are being incurred across most Carbon Steel Materials operations to maximise production in the current high demand environment. These additional costs are largely cyclical in nature. Inflationary pressures on Australian and South African operations also had an unfavourable impact compared with the corresponding period. Depreciation charges increased at Western Australian Iron Ore, Queensland Coal and Illawarra Coal operations (all Australia) due to the commissioning of new plant at these operations.

The same period last year included costs in relation to Boodarie Iron while the plant was on care and maintenance. There was no impact on Underlying EBIT in the current period as all anticipated closure costs were provided for in June 2005 following the decision to close this operation.

Underlying EBIT was US$261 million, a decrease of US$145 million or 35.7%, compared with the corresponding period. This was due to lower realised prices for diamonds (down 19.6% from the corresponding period) because of lower carat quality, higher costs in relation to the processing of lower grade material and lower diamond sales volumes (down 3.1% from the corresponding period). In addition, the corresponding period included earnings from Integris Metals (US), which was sold in January 2005. However, the inclusion for the first time of earnings from Southern Cross Fertiliser operations (Australia) (formerly Queensland Fertilizer Operations) acquired in June 2005 was positive, as was higher realised prices and sales volumes for titanium feedstock.

Half yearly Ekati (Canada) diamond production decreased by 21.1% compared to the corresponding period mainly reflecting the processing of lower grade ore. The second half of the 30 June 2006 financial year will continue to be negatively impacted by the processing of lower grade and lower value material at Ekati.

Underlying EBIT was US$205 million, a decrease of US$91 million or 30.7%, compared with the corresponding period. This was mainly a result of higher unit costs across all operations. Costs increased at Ingwe (South Africa) because of higher depreciation resulting from changes in the estimates of the economic lives of certain operations, the depreciation of rehabilitation assets and inflationary impacts. Increased demurrage at Cerrejon Coal (Colombia) and lower yields and equipment availability combined with increased strip ratios at Hunter Valley Coal (Australia) also led to higher costs. Lower export prices at Ingwe also had a negative impact. However, increased export sales volumes from Ingwe along with a favourable impact from the depreciation of the rand against the US dollar positively contributed to the result.

Underlying EBIT was US$374 million, an increase of US$37 million or 11.0%, compared with the corresponding period. The inclusion of results from the Nickel West operations (Australia), acquired in June 2005, as well as a US$61 million profit on sale of BHP Billiton's interest in the Wonderkop joint venture (South Africa), were the key factors in the increased result.

Negative impacts included lower production and increased costs at the QNI Yabulu refinery (Australia) as a result of lower operational performance and tie-in activity relating to the refinery expansion. The average LME nickel price also fell to US$6.17/lb from US$6.36/lb in the corresponding period. Also offsetting the increase in Underlying EBIT was US$59 million included in the comparative period result relating to earnings from the Group's Chrome operations, which BHP Billiton sold effective 1 June 2005.

Underlying net corporate operating costs excluding exchange impacts were US$108 million compared to US$51 million in the corresponding period - an increase of US$57 million. This was due primarily to higher net insurance costs of US$24 million associated with insurance claims arising from natural disasters and incidents, which are primarily offset by insurance income in the CSGs results. Employee share award and pension costs increased US$10 million over the corresponding period. In addition, higher corporate IT projects and regulatory compliance, including Sarbanes Oxley, contributed approximately US$12 million to the increased costs.

Increased costs were also incurred in the current period in relation to the transition and integration of the WMC business.

Minerals exploration and technology expenditure has increased from US$27 million to US$48 million, mainly due to increased exploration activity in Africa and Brazil.

For the half year ended

31 December 2005

Consolidated Income Statement - 15

Consolidated Balance Sheet - 16

Consolidated Cash Flow Statement - 17

Consolidated Statement of Recognised Income and Expense - 18

Notes to the Interim Financial Statements - 19

1 Acquired operations - 19

2 Business segments - 20

3 Significant items - 22

4 Investments accounted for using the equity method - 23

5 Net finance costs - 23

6 Taxation - 23

7 Earnings per share - 24

8 Dividends - 24

9 Assets classified as held for sale - 25

10 Interest bearing liabilities - 25

11 Total equity - 25

12 Contingent liabilities - 25

13 Commitments - 26

14 Subsequent events - 26

15 IFRS transition - 26

16 Dual Listed Companies Structure and Basis of Preparation of Interim Financial Statements - 31

17 Accounting Policies - 33

Directors' Report - 42

Directors' Declaration - 44

Auditor's Independence Declaration - 44

The accompanying notes form part of these financial statements.

The accompanying notes form part of these financial statements

During the prior year ended 30 June 2005 the BHP Billiton Group obtained control of WMC Resources Ltd (WMC). WMC was acquired on 3 June 2005 for a total cash consideration of US$7,229 million made up of a price of A$7.85 per share plus acquisition related costs.

Due to the complexity and timing of the acquisition, the fair values of the assets and liabilities acquired which were reported at 30 June 2005 were provisional and are subject to review during the year ending 30 June 2006.

As at 31 December 2005, the provisional fair values have been updated to reflect the latest information available. The review of the fair values of the assets and liabilities acquired is still in progress, and these updated provisional values remain subject to review during the six months to 30 June 2006.

The following table details the adjustments to the fair values of the net assets acquired which have been reflected in the six months to 31 December 2005:

• Petroleum (exploration for and production, processing and marketing of hydrocarbons including oil, gas and LNG);
• Aluminium (exploration for and mining of bauxite, processing and marketing of aluminium and alumina);
• Base Metals (exploration for and mining, processing and marketing of copper, silver, zinc, lead, uranium and copper by-products including gold);
• Carbon Steel Materials (exploration for and mining, processing and marketing of coking coal, iron ore and manganese);
• Diamonds and Specialty Products (EKATI diamond mine and titanium operations);
• Energy Coal (exploration for and mining, processing and marketing of steaming coal); and
• Stainless Steel Materials (exploration for and mining, processing and marketing of nickel and, prior to divestment, chrome).

Group and unallocated items represent Group centre functions, certain comparative data for divested assets and investments, and exploration and technology activities.

It is the Group's policy that inter-segment sales are made on a commercial basis.

(1) Other attributable income represents the re-allocation of certain items recorded in the segment result of group & unallocated items / eliminations to the applicable CSG / business segment.

2 Business segments (continued)

(1) Other attributable income represents the re-allocation of certain items recorded in the segment result of group & unallocated items / eliminations to the applicable CSG / business segment.

(1) Other attributable income represents the re-allocation of certain items recorded in the segment result of group & unallocated items / eliminations to the applicable CSG / business segment.

Individually significant items are those items where their nature and amount is considered material and require separate disclosure. Such items included within the BHP Billiton Group profit for the period are detailed below.

In January 2005, the Group disposed of its interest in the Laminaria and Corallina oil fields to Paladin Resources plc. Proceeds on the sale were US$130 million resulting in a profit before tax of US$134 million (US$10 million tax expense).

As part of the Group's regular review of decommissioning and site restoration plans, the Group reassessed plans in respect of certain closed operations. A total charge of US$121 million (US$104 million after tax) was recorded and included a charge of US$73 million (US$21 million tax benefit) for closed mines at Ingwe (South Africa) in relation to revision of the Group's assessed rehabilitation obligation, predominantly resulting from revised water management plans; and a charge of US$48 million (US$4 million tax expense) in relation to other closed mining operations.