| Thu 29 Oct 2009, 13:18 | | BIL - BHP Billiton Plc - BHP Billiton Plc Annual General Meeting 29 October |
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BIL
BIBLT
BIL - BHP Billiton Plc - BHP Billiton Plc Annual General Meeting 29 October
2009
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
29 October 2009
To: London Stock Exchange cc: New York Stock Exchange
Swiss Stock Exchange
Australian Securities Exchange JSE Limited
Deutsche Bank
UBS Zurich
For Announcement to Market
Please find attached addresses to shareholders currently being delivered at
BHP Billiton Plc`s Annual General Meeting by the Chairman and the Chief
Executive Officer.
As part of the Dual Listed Company structure of the Group, the business to
be conducted at the Annual General Meeting will be determined by polls. The
poll results will not be known until the conclusion of BHP Billiton
Limited`s Annual General Meeting which will be held in Brisbane on 26
November 2009. The results will then be communicated to the market.
Yours sincerely
Jane McAloon
Group Company Secretary
BHP Billiton Plc Annual General Meeting
Speeches by Don Argus, Chairman, BHP Billiton
and
Marius Kloppers, Chief Executive Officer, BHP Billiton
29 October 2009
BHP Billiton Plc Annual General Meeting
29 October 2009
Don Argus, Chairman, BHP Billiton
Good morning ladies and gentlemen and welcome to the 2009 Annual General
Meeting of BHP Billiton Plc.
My name is Don Argus and I will chair today`s meeting. Thank you for taking
the time to join us here this morning.
Before we officially begin the meeting, I need to draw your attention to the
normal disclaimers we have to show you on these occasions, and remind you
that they are important in relation to what we are going to talk about
today.
Today`s meeting is also being webcast, so let me welcome those shareholders
joining us online.
Let me start off by introducing your Directors, including one new board
member. To your right is our Chief Executive Officer, Marius Kloppers.
Further to your right is Jac Nasser, your Chairman-elect, who will take over
from me as Chairman in early 2010; Paul Anderson; Carlos Cordeiro; David
Crawford; and David Jenkins. To your left we have John Buchanan, Keith
Rumble, Gail de Planque and John Schubert. Alan Boeckmann and David Morgan
also join us today via video conference.
Next to John is our newest Director, Wayne Murdy. Wayne has more than 30
years experience in the mining and petroleum industries and is highly
regarded in the international resources industry. He was Chairman and Chief
Executive Officer of Newmont Mining Corporation, the world`s largest gold
producer, until 2007 and is a Director of Weyerhaeuser, America`s largest
forest products company, and the US Telecommunications group Qwest. Please
join me in welcoming Wayne to the Board.
While this is Wayne`s first Annual General Meeting it is sadly the last for
David Jenkins. After nine years on the Board, David will retire at the
conclusion of the BHP Billiton Annual General Meetings. He has made an
outstanding contribution to BHP Billiton and I would like to publicly thank
him for his great insights and wish him and his wife, Evanthia, and family,
good health and success in the next phase of their lives.
Having welcomed Marius, I would also like to introduce the other members of
the Group Management Committee. In the front row is Alberto Calderon, Group
Executive and Chief Commercial Officer; Andrew Mackenzie, Group Executive
and Chief Executive of the Non-Ferrous businesses; Marcus Randolph, Group
Executive and Chief Executive of Ferrous and Coal; Karen Wood, Group
Executive and Chief People Officer and Chairman of the Global Ethics Panel;
Mike Yeager, Group Executive and Chief Executive of Petroleum; and sitting
next to Marius, Alex Vanselow, our Chief Financial Officer and Chairman of
the Investment Committee and Financial Risk Management Committee.
Finally, to my right is our Group Company Secretary, Jane McAloon.
Also here this morning are Simon Figgis, Peter Nash and Martin Sheppard,
representatives from the Group`s external auditor, KPMG.
Before we go any further let me give you a brief overview of today`s
meeting. I will talk about Board changes, give you an overview of the
results and then ask Marius to speak to you about our operations, including
the Western Australian Iron Ore Production Joint Venture with Rio Tinto.
We will then cover a few issues shareholders have asked me to address at
this meeting and, finally, move onto the 14 items of business we have to
cover.
This is the last Annual General Meeting of BHP Billiton Plc I will have the
honour of chairing. After 13 years on the Board and ten years as Chairman, I
am retiring as a Director in early 2010. My successor as Chairman, Jac
Nasser, was chosen after an extensive 18 month process managed by the Senior
Independent Director of BHP Billiton Plc, John Buchanan. The process
included considering a number of external and internal candidates and
conducting a secret ballot of the Board to determine the successor. The
voting was overseen by our auditors KPMG.
Jac joined the Board in 2006 and is a member of the Risk and Audit
Committee. He has extensive international business experience gained during
33 years with the Ford Motor Company where he was appointed President and
Chief Executive Officer of the corporation`s global operations. After
leaving Ford he became one of the original partners of One Equity Partners,
the private equity arm of JP Morgan and is a Director of British Sky
Broadcasting plc.
Now, as you all know, BHP Billiton is one of the world`s largest and most
successful companies. We have more than 100 operations across 25 countries.
Likewise, Jac is a true internationalist and over the years has held senior
business leadership positions in Australia, Asia, South America, Europe and
North America. He has already made an outstanding contribution to the Board
and we are confident that he will be an outstanding Chairman. Jac - on
behalf of the Board and all shareholders - we wish you all the best.
Now, moving on to the financial results.
As usual at our meetings, we will talk in US dollars because that is the
currency we report in.
Eight years ago, when shareholders were asked to vote on the merger of BHP
and Billiton, we said combining the two companies would create strength,
flexibility and growth for shareholders. We said it would create a company
of global scale with a diversified, high-quality portfolio of assets and
that it would have financial strength through its powerful cash generation.
The benefits of that strength, diversity and powerful cash generation are
clear in our latest financial results.
The International Monetary Fund recently said that the breadth and severity
of the financial crisis and economic slowdown were the most serious
experienced since the 1930s.
Like almost all companies our revenue and profit were affected by the
decline in demand for our commodities. In the six months from July to
December 2008, for example, commodity prices fell on average between fifty
and ninety per cent. Despite occasional short-term rallies in individual
commodities, at the end of the 2009 financial year, average commodity prices
were still off by almost 50 per cent from their peaks.
These conditions tested all resource companies. And, they tested the very
basis for the BHP Billiton merger.
The bottom line is that we generated our highest ever net operating cash
flow of $18.9 billion, increasing from $3.9 billion in 2002. Importantly for
shareholders, our financial strength meant we could actually increase our
dividend this year at a time when many other companies were maintaining,
reducing or cutting out dividends altogether.
Equally our underlying EBIT margin of 40 per cent and our underlying return
on capital of nearly 25 per cent are substantially above our industry peers
and significantly above most companies of our size.
This is largely due to our strategy of investing in a high quality
diversified portfolio of commodities.
We have a very simple but effective strategy. It is to invest in the very
best large, long life, low cost, export oriented, assets. They must also be
diversified by geography and commodity. We call these Tier one assets.
At the same time, we actively managed our balance sheet through the up-cycle
to be well prepared for the down-cycle. Our net gearing is a very low 12
per cent.
These Tier one assets, combined with our strong balance sheet means that BHP
Billiton is better positioned than most companies to benefit from an
economic recovery.
Equally, our record cash flow and balance sheet strength enabled us to
invest $11 billion or over $30 million a day in capital and exploration
programs in the 2009 financial year. This at a time when many of our
competitors were cutting back their investments.
Finally, and as I mentioned previously, our financial strength and
performance means that we have maintained our progressive dividend policy.
Despite the economic challenges this year we increased dividends by 17 per
cent to 82 cents a share. In fact since the creation of BHP Billiton in 2001
we have paid out more than $32 billion in dividends and share buy-backs.
This includes more than $18 billion in dividends alone.
On any measure your company has performed exceptionally well. For instance,
total shareholder return, or TSR, has increased by 220 per cent over the
last five years. With that type of performance your Board believes that BHP
Billiton is strongly positioned to continue to invest in growth and to
participate in opportunistic mergers and acquisitions that are consistent
with our strategy.
The Western Australia Iron Ore Production Joint Venture with Rio Tinto is an
example of our focused pursuit of growth in production capacity. We expect
the proposed joint venture to unlock significant value from the companies`
overlapping, world-class iron ore resources. Both companies believe the
value of these unique production and development synergies will be more than
$10 billion with many shareholders expressing support for this operating
joint venture. Shareholders will have an opportunity to consider this
transaction at a shareholder meeting to be held in 2010.
However, there is one critical area of our operations that remains
completely unacceptable. While our overall safety performance improved
across the group, during the year seven of our people died while at work.
Five of those fatalities were at our Western Australian iron ore sites.
On behalf of the Board I express sincere condolences to the families and
friends of all seven men.
While I know Marius will also touch on safety, let me make two key points:
* we have made significant changes to the way we operate at our iron ore
sites; and
* we have made absolutely sure that our leaders understand our expectations
in relation to safety and have clear accountabilities.
The Board is committed to do whatever is necessary to ensure all our people
are in the safest possible working environment.
Before I ask Marius to speak let me give you our view of the global economy
and the implications for BHP Billiton.
The global economy remains challenging but has been helped by unprecedented
macroeconomic and financial policy support by governments. From a global
perspective, this support is recognised by the International Monetary Fund
amongst others, as providing substantial and critical support for the world
economy and the financial services sector.
In the IMF update this month on the World Economic Outlook three key points
are made:
* first, that the global economy is expanding again and financial conditions
have improved markedly. However, it will take some time for employment to
improve significantly;
* second, that the main policy priority still remains restoring financial
sector health particularly in Europe and the US and to put in place
financial reforms that prevent a similar future crisis; and
* third, while it is too soon to end these policies, it is not too soon for
governments and central banks to identify their strategies for returning
budgetary and monetary positions to a more normal footing. Exit strategies
from public support need to be clearly articulated to help guide markets.
We now need to avoid the situation where the global economy remains
dependent upon record government spending and an environment of very low
interest rates. We must all appreciate that the debt incurred by
governments needs to be serviced and ultimately repaid.
While we believe the global economic recovery will be sluggish, we also
continue to believe there will be strong long term demand for our products
from the Asian region.
The real driver of China`s growth is industrialisation and urbanisation of
its cities. The scale of construction required to support the mass migration
in India and China from rural to city areas is almost beyond comprehension.
But as nations industrialise, and urbanise, the commodities we produce are
critical to their growth.
BHP Billiton is well positioned both financially and operationally to meet
the resource needs of both the developing and developed economies as they
return to health. In an uncertain world we remain confident of the ability
of our company to continue to create value for shareholders, employees and
the communities in which we operate.
On that note, I would like to invite your CEO, Marius Kloppers, to address
the meeting.
Marius Kloppers, Chief Executive Officer, BHP Billiton
Thank you Don. Good morning everyone and thank you for joining us here
today.
Don has covered the financial results, so I won`t go through them again in
detail. What I would like to do is put some context around what we
experienced during the 2009 financial year.
The 2009 financial year was extraordinary - unlike any I have seen during my
career. The two distinct periods in the financial year could not have been
more different. The first quarter saw rapid demand growth and record high
commodity prices. In the second quarter, the severe and rapid global
economic crisis hit the industry with massively reduced demand.
While spot prices for our commodities increased by up to 90 per cent from
the absolute lows of the year, commodity prices at the end of our financial
year were still generally 20 to 60 per cent lower than at the start of the
year.
So, 2009 stands out as a tough year that strongly tested the industry as a
whole.
In fact, coming off a period of a number of years of unwavering strong
demand for resources, many of our peers had to rethink their long-held
growth plans and make an about-turn in strategy in response to the global
economic downturn. For many of our competitors, long-term shareholder value
had to be sacrificed in order to manage through the down cycle. This meant
scaling back or scrapping short term growth for long term security and - in
some cases - for survival.
BHP Billiton was not immune to the challenges the economic downturn
presented. However, it also highlighted the effectiveness and strength of
our strategy, as well as the benefits to shareholders our long-term focus on
this strategy has delivered.
Our strategy of focusing on a portfolio of tier one, low-cost, long-life,
expandable and export oriented assets, diversified by geography and
commodity, was fundamental to delivering the strong financial results Don
took you through earlier.
On top of this, we always keep our assets under review, and take swift,
decisive action for any operation that is not delivering the returns
expected over the long term. We were uniquely positioned to ensure we did
not have to sacrifice long-term value for short-term survival. But, given
the extreme economic conditions we responded prudently so we were positioned
for any continuing or sustained fall in demand.
Very early in the global financial crisis we acted quickly to curtail
production across our metallurgical coal, manganese, nickel and iron ore
pellet operations to protect our business from the impact of cash negative
operations.
We are always mindful that these decisions can involve job losses. We know
the impact this has on the people and the communities affected. Let me
assure you these decisions are never taken lightly or easily.
Because of this disciplined approach we have, over time, built a portfolio
of exceptional assets that has allowed us to deliver an underlying EBIT
margin for the 2009 financial year of more than 40 per cent. Our focus on
disciplined capital management ensured we were better prepared than most to
not only manage through the downturn but to continue to invest substantially
in growth.
Over the last year we approved four growth projects worth $5.9 billion.
This brings our pipeline of projects currently in execution to about $14
billion.
During the 2010 financial year we intend to invest approximately $10 billion
in capital and exploration expenditure.
We also managed our balance sheet to leave us well positioned to take
advantage of any opportunities the current market delivers, such as the
Western Australia iron ore production joint venture Don talked about. This
joint venture will see us invest a further $5.8 billion beyond the already
sanctioned projects.
Now, let me briefly talk about one of the areas of most significance to all
of us at BHP Billiton; safety.
Our workforce of employees and contractors is made up of approximately
100,000 talented people across 25 countries. Each of them works hard every
day to deliver meaningful value to this business, and each and every one of
them deserves to feel safe at work and free from harm.
I am personally, deeply concerned by any workplace accident, injury, illness
or fatality. They are almost always avoidable, which makes the impact on
the individuals involved, their families, friends and colleagues, all the
more tragic. So, it is with a genuine and deep sense of regret that I report
that in the 2009 financial year seven of our people died at work, five of
which were at our Iron Ore business in Western Australia, and in financial
year 2010, two people have died at work.
The leadership at BHP Billiton has always maintained that any injury is
unacceptable. These fatalities reinforce the need for all of us - at every
site, in every office and in every project - to leave nothing undone that
can protect our people. To this end, we have reacted to these tragic losses
with a range of measures, starting with reviews of our management procedures
and safety systems.
The determination and rigour with which we address every incident has had
some results. Encouragingly, we have made positive progress in achieving a
continual reduction in both total recordable injury frequency, and
classified injury frequency since 2007, as this slide shows. In the 2007
financial year, we had a total recordable injury frequency of 7.4 per
million hours, and classified injury frequency of 4.3 per million hours. In
the first quarter of the 2010 financial year, this has reduced to a total
recordable injury frequency of 4.5 per million hours, and classified injury
frequency of 3 per million hours.
Seven of our Customer Sector Groups reported improvements in Total
Recordable Injury Frequency performance in 2009. Twenty-four BHP Billiton
sites completed 12 months of operations without a Lost Time Injury. In
aggregate, this amounts to more than 23 million hours of work without a Lost
Time Injury.
Our challenge is to replicate this performance throughout our business. We
must remain resolute in continuing our work towards zero workplace injuries.
Health and safety is a serious issue across our whole business, and it is
the number one performance measure for each and every executive. Every
single employee at BHP Billiton knows that the health and safety of our
people must never be sacrificed for production performance. We will not
relent until we have eliminated these sorts of incidents from our
operations.
I have talked a bit about the last financial year and would now like to
spend a few minutes on the near term outlook for the world`s economies. Over
the past six months we have seen quite a rebound in commodity prices and in
particular, the velocity of the recovery in China has indeed been
surprising.
China has been the major and sometimes only source of demand for commodities
in the second half of 2009. This demand represented both restocking and
underlying demand. The key question for us is just how much of the recovery
in China has been as a result of pent-up demand from a much depleted
inventory chain and how much represents real underlying demand?
We believe that recently there has been a substantial inventory build in
China across commodities at both the end user level and with traders and
strategic stockpiles. It is thus our view that restocking in China is now
essentially complete and we are seeing signs of a pullback in demand as a
consequence.
Outside of China, we saw steel capacity usage fall to 50 per cent in the
three major steel markets of the US, Europe and Japan. We are now seeing
the utilisation rate climb as the first evidence that restocking in the
major economies has commenced.
The key driver of incremental commodities demand in the near term will be to
what extent the OECD experiences a more usual post recession restocking, or
whether the restocking will be more lethargic this time around. It is our
view that we will come out of this recession less strongly than in previous
cycles. We, therefore, believe it won`t be until mid 2010 before we see
clean underlying demand that is not masked by inventory effects.
Having talked about the near term outlook, we have no reason to change our
long-held view that Chinese growth will continue and will continue to be
resources-intensive. We will maintain our focus on long-term growth in
production capacity to meet these needs. This is where our strategic focus
really comes into its own.
We remain uniquely positioned to capitalise on the opportunities before us.
Our low gearing, strong cash flow and portfolio of investment options means
we will continue to create sustainable, real value from the long-term demand
for our commodities.
On a final note, before I give the floor back to the Chairman, can I thank
Don Argus for his leadership as Chairman over the past decade on behalf of
our employees and the management team?
I was part of the company when it was created in its present form. Since
then, Don has been an inspirational leader. He has listened to management,
provided invaluable advice, been an important mentor and, perhaps most
importantly, challenged our ideas with robustness and clarity always
reaching for the best answers and the best course for this company.
Don has been a central figure in turning BHP Billiton into the great company
it is today.
Finally, I would like to thank shareholders for their continued support over
the past 12 months. I look forward to meeting you all after the meeting.
With that, I`ll hand back to Don.
Don Argus, Chairman, BHP Billiton
Thank you Marius for those kind words. I would like to respond to those a
little later.
On behalf of the Board, I want to thank our management team for their
efforts this year. BHP Billiton has a world-class management team. Talented
people make the difference in this complex world and the results we have
discussed today are a demonstration of that.
Equally, the financial strength, the depth of our growth pipeline, and the
human resource bench strength we have at every level of the group, is
further evidence of a team of executives who take the long view.
I equally want to thank our 41,000 employees and 58,000 contractors for
their contribution to the success of your company.
Now, let me move on to discuss the two major topics raised by shareholders.
The first is climate change. I want to start the discussion by making the
point that BHP Billiton shares the view that mainstream science is right in
pointing to high risks from unmitigated climate change.
Equally, we believe that economic growth and a healthy climate are not
mutually exclusive. By dramatically increasing the carbon efficiency of
what we produce, just as we have increased labour and capital efficiency in
the past, we believe we can achieve both.
To do this we need to cut emissions while maintaining and growing output.
In turn this broadly requires:
* the power sector to move away from carbon intensive energy sources;
* energy consumers to use power as efficiently as possible; and
* greenhouse gas emissions to be reduced cost effectively.
To illustrate the challenge let`s look at the sources of energy used to
generate electricity today and what is expected by 2025.
This slide shows that fuel sources for electricity supply over the next 15
years will continue to be mixed. You can see that nuclear and gas will gain
share at the expense of coal. This makes economic sense.
Nuclear has very low life cycle emissions and gas has a significantly lower
emissions footprint than coal. Both can produce large amounts of relatively
cheaper electricity and both are the best broadly available substitutes for
coal as base load electricity supply.
Can I emphasise that base load electricity supply meets the underlying every
day demand for electricity. It is supplemented by more expensive peak load
electricity during times when demand for electricity increases, such as
during hot or cold weather. Renewables such as biomass, wind and solar will
play a role but not for base load electricity.
However, on current estimates, around 40 per cent of global electricity
generation in 2025 will still be coal-fired. In simple terms this means that
coal emissions need to be addressed to have any chance of making a
meaningful reduction in global emissions. There are only a few options to
achieve this.
One option as already discussed is to progressively replace coal-fired power
stations with nuclear and gas. The other is to install carbon capture and
storage technology in existing and in new coal plants.
There is no doubt that carbon capture and storage technology has the
potential to transform the carbon efficiency of coal fired power stations.
Governments and the private sector are undertaking important research and
development work on carbon capture, but as of today the technology is
uncertain and the cost is still to be established. It will require
substantial re-engineering of existing coal plants and in some instances
complete replacement of furnaces. Whichever option is adopted, it will be
expensive and any cost will flow directly to industry and eventually to all
consumers.
But as an industry and community we must reduce coal emissions.
We touched on nuclear energy earlier. There is no doubt that nuclear is a
part of the low-carbon strategy for some countries. Already 16 countries
depend on nuclear power for at least a quarter of their electricity. France
gets around three quarters of its power from nuclear energy, while others
such as Belgium, South Korea, Sweden and Switzerland get one third or more.
Japan, Germany and Finland get more than a quarter of their power from
nuclear energy, while the USA gets almost one fifth.
The increased acceptance and use of nuclear energy means that a global
approach is also needed to manage nuclear waste. Through our active
involvement in the development of a global uranium stewardship program, we
are working with all sectors in the nuclear fuel cycle. Ongoing
technological advances in managing nuclear waste are being made.
So in summary, and from our perspective, we believe there are four key
planks to achieving a healthy climate and a healthy global economy:
* first, there needs to be a global effort by both the developed and
developing world to reduce carbon in the atmosphere;
* second, the solution will require behavioural and lifestyle changes
involving industry, government and consumers to dramatically increase energy
efficiency;
* third, we need to rapidly deploy low-carbon energy sources such as nuclear
power, gas, renewables and coal with carbon capture and storage; and
* finally, any plan should not disadvantage the efforts of developing
countries to lift their people out of poverty through economic growth.
We all know there is no silver bullet to address the issue. Climate Change
is a global challenge in which every country needs to be involved and
developed countries do need to take the lead. But no country can do this on
its own and no country can do this without the active understanding and
involvement of its citizens.
The recent commitments of China`s President Hu Jin Tao are exceptionally
important in this regard as China is a key party to an effective
international agreement to reduce emissions globally.
For BHP Billiton`s part we are taking a number of steps including:
* setting ambitious energy and Greenhouse gas efficiency targets for our
operations;
* working to achieve a meaningful reduction in our internal energy use and
our greenhouse gas emissions; and
* supporting industry research and development into low emission
technologies such as carbon capture and storage.
We continue to challenge ourselves to look for ways to reduce our footprint
and to collaborate with others to achieve this. Along with the rest of the
world, we now await the results of the Copenhagen discussions in December
with keen interest. Political leadership is critical in setting a global
framework within which to achieve the global objective of reduced emissions.
The other item that shareholders have asked me to address is executive
remuneration. There has been some comment on our executive remuneration
policy and practices and some misinformed reporting on what our CEO actually
earned in 2009.
I want to assure you that despite what has been reported Marius did not
receive a 51 per cent increase in his pay. Year on year his actual total
remuneration was constant and his short term incentive decreased. His base
salary was also frozen for this current financial year, that is 2009/2010,
as were all Directors` fees.
Having said that, we believe that the current global debate on executive
remuneration is very important. It is in everyone`s interest for companies
to be able to demonstrate alignment of interests between shareholders and
executives.
Equally, the statutory reporting requirements of remuneration should reflect
what executives actually get paid. Too often the debate occurs on the basis
of theoretical accounting calculations of a Chief Executive`s potential
remuneration which can create confusion.
It is important to understand that a large component of BHP Billiton`s
executive remuneration is based on how we perform compared to our peers.
This may mean that in any one year executive remuneration may increase
either more or less rapidly than total shareholder return.
In the longer run they are aligned. This is because an executive only
benefits over time if BHP Billiton continually outperforms its peer group
companies over the same period.
At BHP Billiton we believe that transparency of remuneration arrangements
and open dialogue with shareholders is crucial in maintaining alignment of
executive remuneration with shareholder interests.
Let me step back.
Our remuneration policy is overseen by the Remuneration Committee of the
Board which, in turn, reports to the Board on its deliberations. That
committee is chaired by John Buchanan, Senior Independent Director for BHP
Billiton Plc. In its deliberations the Committee receives advice from
independent adviser Kepler Associates as well as internal advice from
remuneration specialists.
John Buchanan, as Remuneration Committee Chairman, has advocated the
importance of both formal and informal consultation with institutional and
retail shareholders and we ensure we adhere to that approach.
A key principle of our remuneration policy is the commitment to link
executive pay to BHP Billiton`s performance and the creation of value for
shareholders.
Put simply this means having the best people in the right job and taking the
right level of risk in making decisions over the long term.
I don`t think there has been a better time to test the quality of management
of any company and its compensation practices anywhere in the world than the
past 12 months. BHP Billiton has performed very well, substantially
outperforming an index of 23 peers in the natural resources and oil and gas
sectors. I will come back to this shortly.
We are proud of this achievement and, particularly, of Marius and his
leadership team - you will recall what I said earlier - good people make the
difference in the delivery of sound results.
To achieve this link between pay and shareholder value, a large percentage
of an executive`s remuneration package is therefore at risk. In other words
it will only be earned if challenging performance targets are met. In
Marius` case, as the next slide will show, over 70 per cent of his total
remuneration is at risk.
Let me explain how his compensation package is structured.
First, there is the fixed component, which is made up of base salary,
pension and other benefits and represents 28 per cent of his total
remuneration.
In 2008 Marius` base pay was increased by 7 per cent. This amount was in
line with the average amount by which remuneration was adjusted for
employees and reflects the cost of living increase in the country in which
he worked. We believe it is an important practice that executive
remuneration is increased by the same amount as the remuneration paid to
other employees irrespective of level.
His base pay was also increased by an additional 3 per cent on 1 October
2008 which was the first anniversary of his appointment as CEO. This
reflected the number of dollars that the Board held back when he was
appointed CEO so that we could evaluate his performance over the first year.
At the risk of repeating myself, there was no increase in his base salary
this current financial year.
Second, there is the at risk component.
The first element of "at risk remuneration" is the short term incentive,
which will only be earned if Marius achieves goals linked to BHP Billiton`s
safety performance, business strategy and budget, as well as personal
objectives and these are incorporated in the performance hurdles.
An executive only earns the at risk remuneration after he or she has met the
Key Performance Indicators and performance hurdles. Half of the short term
incentive that might be earned each year is delivered in the form of either
deferred shares or options that must be held for two years. This operates
like a holding lock.
This year Marius earned a cash award of 85 per cent of base salary which
incorporated a zero outcome on safety.
Furthermore, consistent with good remuneration practice, the short term
incentive is received half in cash this year and half in shares, which are
only delivered after two years.
The second element of "at risk remuneration" is the long term incentive
which is delivered in the form of Performance Shares under the Group`s Long
Term Incentive Plan. This plan was introduced and approved by shareholders
in 2004.
Performance is assessed at the end of five years and is measured by
comparing BHP Billiton`s total shareholder returns against a peer group of
companies as I mentioned earlier.
The performance hurdle is without doubt as tough as any I have seen. Not
only does it run longer than most - five years - it also requires BHP
Billiton to exceed the average Total Shareholder Returns of peer group
companies by 5.5 per cent per annum - or 30.7 per cent over five years.
You can see that around 72 per cent of Marius` pay is at risk and dependent
on delivery of superior outcomes for BHP Billiton shareholders.
Now let me see if I can pull together what Marius actually receives in cash
as distinct from statutory reporting requirements.
This slide summarises just how his remuneration is structured in terms of
cash and shares that have vested in the period because performance hurdles
have been met.
In 2009, he received total cash of $4.6 million comprising his base salary,
pension contributions, as well as a dividend equivalent payment representing
dividends paid on shares that have vested. This amount also includes a short
term incentive cash award of $1.7 million.
Now we get to the complex part of his package and that is the at risk
element of his remuneration in the form of Long Term Incentive Awards and
Deferred Shares. These are approved every year by shareholders.
Just to remind you the Long Term Incentive Plan was introduced in 2004 and
performance is assessed at the end of five years and is measured by
comparing BHP Billiton`s total shareholder returns against a peer group of
companies.
While the sharemarket rewarded shareholders well over this period, Marius
and other executives did not receive any long term awards in 2007 and 2008
as the scheme was only introduced in 2004.
The first five year cycle of the Long-Term Incentive Plan ended on 30 June
2009 and Marius` 2004 awards vested in August 2009. This is because at the
end of that performance period, BHP Billiton ranked second out of 23 peer
group companies.
This is what I referred to earlier about aligning executive pay with
shareholder value creation.
Now let me give you a summary of how the Long Term Incentive Plan works over
time. This slide outlines the awards made under this scheme since 2004. As
you will see, the award from 2004 vested in 2009 because the performance
hurdles were met and will be recorded in next year`s Annual Report.
In terms of those performance shares granted after 2004, they may or may not
vest. By way of example, the expected value of the shares awarded in 2008
was calculated by the Committee`s independent advisers to be 31 per cent of
face value.
What does this mean in terms of value creation for BHP Billiton
shareholders? You can see in this slide what our out-performance means for
shareholders.
Over that five year period $80 billion in enterprise value was created above
our peer companies.
So in summary, we believe that our remuneration policy and structure are
aligned with shareholders` interests in that executives only benefit if
shareholders also benefit.
Now, before we move to the business of the meeting I want to say a few words
about my time at BHP Billiton.
During my 13 years with the company I`ve had the opportunity to work with
some of the most talented individuals I`ve ever met in my working career.
With the support of the Board, Paul Anderson did a magnificent job of
turning the company around in the late 1990s and setting the foundation for
BHP Billiton today. Chip Goodyear laid the ground for the financial strength
you saw evidence of earlier. Marius Kloppers has already made a substantial
difference leading the organisation through some of the most difficult times
faced since the 1930s. In the Board`s view Marius has few peers in
understanding the dynamics of the commodities business.
I won`t mention each of the Directors I`ve had the great pleasure to also
work with but I appreciate the hard work and support they have given me.
There are many others inside and outside of BHP Billiton that I would like
to thank but of course time does not permit.
However one thing that does give me the greatest pleasure has been meeting
so many shareholders and having a chance to discuss and address their
concerns and suggestions. Without the support of shareholders we would not
be the organisation we are today.
I know Jac Nasser and the Board, together with Marius, will take the Group
to even greater heights.
I would now like to turn to the business of the meeting.
The Chairman then conducted the formal items of business.
Don Argus, Chairman, BHP Billiton
In closing the meeting, let me say again that the results for the 2009
financial year demonstrate the strength of the BHP Billiton Group and we
continue to strive for continuous improvement.
BHP Billiton Limited will hold its Annual General Meeting on 26 November
2009 in Brisbane, Australia. The results of both meetings will be notified
to the stock exchanges after that time and will be made available on our
website.
I want to thank shareholders for your support over the past 13 years that I
have been on the BHP Billiton Board and my 10 years as Chairman. It has
always been my underpinning principle to respect shareholders as the owners
of the Company, as it is to you that I am accountable for the Company`s
governance and performance. It has been an outstanding highlight of my life
and an extraordinary privilege to serve you as Chairman.
Thank you for attending, have a safe journey home and I wish you a happy and
healthy festive season. I invite you to join us for refreshments.
BHP Billiton Limited BHP Billiton Plc Registration
ABN 49 004 028 077 number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 180 Registered Office: Neathouse
Lonsdale Street Melbourne Place London SW1V 1BH United
Victoria 3000 Kingdom
The BHP Billiton Group is headquartered in Australia
Date: 29/10/2009 13:18:01 Produced by the JSE SENS Department.
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