| Fri 26 Nov 2004, 9:54 | | Billiton Plc 2004 AGM - Speeches |
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Billiton Plc 2004 AGM - Speeches
BHP BILLITON PLC
SHARE CODE: BIL
ISIN: GB0000566504
26 November 2004
To: Australian Stock Exchange cc: New York Stock Exchange
Companies Announcements Office Swiss Stock Exchange
London Stock Exchange Johannesburg Stock Exchange
Companies Announcements Office Deutsche Bank
For Announcement to the Market
Please find attached addresses to shareholders at the BHP Billiton Plc Annual
General Meeting which were delivered by the Chairman and the Chief Executive
Officer in London on 25 November 2004.
Yours sincerely
K J Wood
Company Secretary
BHP Billiton Plc 2004 AGM
25 November 2004
DON ARGUS, CHAIRMAN, BHP BILLITON
Good morning.
My name is Don Argus, and I will Chair today`s meeting. Welcome
to the 2004 annual general meeting of BHP Billiton.
It is now three years since you and other shareholders voted to
merge the two companies. While this year`s financial results
demonstrate just how sound your decision was, I hope you get a
real sense of just how much momentum the new company has from
today`s meeting.
I propose to take the Notice of Meeting as read. If you need a
copy of the Notice, please ask one of the attendants. Minutes
of our last meeting are available for inspection in the
registration area outside.
Let me now introduce your directors. You can read full details
of their backgrounds and qualifications in the Annual Report.
On your far right is Mike Salamon, an executive Director and
Group President Non-Ferrous Materials. Next to Mike is David
Jenkins then Michael Chaney, David Crawford, John Buchanan and
Chip Goodyear, who is also our Chief Executive Officer.
On my right is our Company Secretary, Karen Wood. Karen is
sitting next to Chris Lynch, our Chief Financial Officer; next
to Chris is our Chief Legal Counsel, John Fast, then John
Schubert, Lord Renwick and Dave Brink.
Also here this morning are representatives from the Group`s
external auditors, KPMG. We have Jimmy Daboo, Peter Nash and
Chris Jenkins.
Let me now run through today`s agenda.
I would like to talk briefly about the financial results for the
2004 year, a year in which BHP Billiton more than delivered on
all the commitments we made to you when you voted on the merger
just three years ago.
After such a strong performance, particularly in the resources
industry, the question everyone rightly asks is `can you sustain
this level of performance?`
I`ll ask our Chief Executive Officer, Chip Goodyear, to address
that by talking about the operations, how they are performing,
our growth pipeline and what areas of the business you can
expect to see expand.
After Chip`s presentation, I`ll take questions from shareholders
before we proceed with the formal items of business.
At the end of the meeting, the directors and the management team
would like you to join us for some light refreshments.
Turning to the results. At the outset I remind you that all
references to dollar figures are in U.S dollars unless otherwise
stated. As you know, we operate and report in US dollars so
Chip and I will remain consistent with that today.
In 2004, BHP Billiton delivered on the commitments we made to
you at our merger meeting in 2001. This year`s results
demonstrated the significant potential that this unique company
is yet to fully realise.
While I`m sure you`ve seen the details of the numbers in the
annual report and in the media, let me take you through a few of
the highlights.
- We had a record attributable profit of $3.5 billion, up by 83 per cent on
2003;
- We increased earnings before interest and income tax by 58 per cent to $5.5
billion;
- We increased available cash flow by 46 per cent to $5.2 billion;
- We returned more than $1.6 billion to our shareholders in dividends;
- As importantly, during 2004, we spent more than $1.7 billion on our long term
growth projects to ensure we maintain the momentum; and
- We did all this while maintaining our single-A credit rating.
What you can see from the charts on the screen is that BHP
Billiton has delivered sound, profitable growth over the last
three years since the merger.
While the Board declared a final dividend of 9.5 cents per
share, a full two-cents per share, or a 27 per cent increase
over the final dividend last year, your overall payout for last
year actually increased by 79 per cent.
That is because there were actually three dividend payments,
totalling 26 cents a share, during the year. This was part of
the realignment of our dividend declarations with our half and
full-year results announcements.
Overall, the increase in the final dividend was the fifth
consecutive increase. This demonstrates our progressive dividend
policy and commitment to return value to shareholders when it
makes sound economic sense.
In September the Board announced details of the first phase of a
$2 billion capital management program.
This program allowed eligible BHP Billiton Limited shareholders
to participate in an off-market buy-back of BHP Billiton Limited
shares.
We announced this Tuesday the successful completion of this
first phase. BHP Billiton repurchased 180.7 million shares worth
US$1.780 billion under the buy-back, representing 2.9 per cent
of the issued share capital of the BHP Billiton Group. Due to
strong demand, the amount was over 50 per cent higher than
initial expectations. The final price for the buy-back was
A$12.57 per share, representing a discount of 12 per cent to the
volume weighted average price of BHP Billiton Limited shares.
The Board believes this was the most efficient and value-
enhancing way to return capital to all BHP Billiton shareholders
around the world, because of the enhanced value of the remaining
shares through the increased earnings, cash flow and return on
equity.
Now that the buy-back has been completed the Board will consider
alternatives for returning the balance of the $2 billion to
shareholders within the next 12 months, which could take the
form of further share buy-backs in either BHP Billiton Plc or
BHP Billiton Limited, or enhanced dividends.
While the BHP Billiton group has over 330 thousand shareholders,
most of our shares are held by large superannuation and
investments funds. So we know that many millions of people
around the world have placed their trust in us to protect their
future.
I think all shareholders would take pride that the Board, Chip
and his management team and all 35 thousand people at BHP
Billiton have been able to present such an outstanding financial
result for you.
As Chip said at the time we announced the 2004 profit, these
results are the outcome of preparation meeting opportunity.
Many analysts who have followed resource stocks for any length
of time have often complained that they have seen resource
companies make great profits in good times and then waste that
cash in unproductive capital projects.
There was often criticism that resource stocks struggled to
generate a return above their weighted cost of capital.
Here you now have a company generating a return of 21.4 per cent
on the capital invested and a pipeline of projects that enables
us to approach the future with confidence.
Quite a remarkable story.
This is an industry where it is possible to create significant
value for shareholders but where shareholder value can also be
significantly destroyed.
Under Chip`s management, value-building growth is the product of
a conscious, constantly monitored process, where success breeds
success and value-builders control their own destiny.
So what is it that drives value growth?
Our BHP Billiton Charter states: `Our purpose is to create long-
term value through the discovery, development and conversion of
natural resources`.
Most research suggests that a company`s current earnings streams
account for 20 per cent at most of a company`s market value.
The other 80 per cent comes from the expected profit growth over
the coming years.
The extent of that future profit growth depends on three things.
- What is the expected revenue growth from the pipeline of
projects being developed;
- What is the expected growth in production from existing
operations and; finally,
- What productivity gains can be made in the existing operations
that will deliver more product at a lower cost.
In a few minutes, Chip will give you his views on our operations
and where he sees growth coming from, both in relation to our
existing operations and the opportunities we have for new
projects.
Before he does, let`s look at the value that has been created
since the merger.
You can see on this graph how BHP Billiton, since the merger,
outperformed the FTSE 100 index by 106 per cent as at the 30th
June 2004, and by 134 per cent as at the end of October this
year.
The next slide shows that an investment of GBP1000 in BHP
Billiton Plc at the time of the merger is worth today around
1,770 pounds.
I have just talked about how BHP Billiton is making sure that
shareholders benefit directly from the company`s growth.
But we have a broader responsibility.
As well as being shareholders, all of us have an increasingly
strong interest in how the companies we invest in manage their
social, community and environmental responsibilities and how
they add value in these areas.
I hope that from the video screened at the opening of this
meeting, you will have at least a fleeting impression of some of
the remote regions and communities in which we operate. The
difference between most companies and large resource companies
is that we are a vital part of the fabric of these communities.
Increasingly, we are expanding our operations into parts of the
world where local communities need support in health, education,
local infrastructure and general improvement in living
standards.
If we are to prove our worth to these local communities and make
sure they value our presence, we need to do more than simply
provide jobs and pay taxes.
Some part of this is financial. Each year we commit to a global
target of one per cent of our annual pre-tax profit, on a
rolling 3-year average, to community programs.
What this means is that the more successful we are and the
greater our profit, the more we put directly into the community.
In 2004, we actually spent 1.3 per cent or US$46.5million.
Several of the programs we support have been commended by
external groups. You can see more details of our major programs
in our HSEC report on the website.
While we`re proud of these successes, we do have some challenges
ahead of us in the health, safety, environment and community
area.
We take our commitment to Zero Harm very seriously. So all of
us have been devastated by the 17 deaths across our operations
during the year.
The death of each of those people had an incredible and enduring
impact on their families, their workmates and the communities
where they lived.
While an enormous effort has been made at every level of the
business to make the workplace safer, all of us on the Board and
every single manager has a renewed commitment to the only
acceptable safety standard; that is Zero Harm.
As the world`s largest diversified resources company we also
understand the responsibility we have to be a leader in the way
in which we approach the environmental and social aspects of our
work.
We have success stories and some not so successful cases. If
you have not already seen our Health, Safety, Environment and
Community Report then I urge you to have a look at what is a
very candid report on our activities.
I would, however, like to take a few minutes to explain how we
have managed a project for which we have probably received more
criticism than any other - that is the Ok Tedi mine in Papua New
Guinea.
BHP commenced mining in PNG in 1984. By the late 1990s it was
apparent that the potential for further environmental damage was
significant and could only be mitigated by closing the mine.
Regrettably, our preferred option of early closure was not
considered an acceptable option by the PNG Government because of
the very significant economic and social benefits the mine
brings to the people of PNG.
Faced with that outcome, BHP set about developing a strategy
that would enable the company to leave the project in a
responsible way. This involved the transfer of the company`s
52% holding to the PNG Sustainable Development Program Company.
The Program Company was established to develop and deliver
sustainable development projects for the people of PNG. The
Company has a board of seven directors, three of whom are
appointed by BHP Billiton.
In exiting the mine, we also made sure that the occupants of
affected villages would continue to receive direct compensation
for environmental damage caused by mining activity, and that
funds were made available to manage ongoing environmental impact
and the eventual mine closure.
The activities of the Program Company are controlled by its
board. BHP Billiton does not - and cannot - control those
activities. It is also important to note that BHP Billiton does
not receive any income from Ok Tedi or the Program Company.
To date the Sustainable Development Program Company has received
US$137 million in dividends from the mine. These funds are
being applied to short and long-term projects in the areas of
health and education, food production and agribusiness and
forestry. The company is structured in a way that will ensure
that funds continue to be disbursed for up to 40 years after the
end of mine life.
It was a responsible exit from a complex situation, and one
fully consistent with our Charter. But it is not a situation we
would ever expect to find BHP Billiton in again.
The nature of mining activity means that whole communities are
often impacted. Far from being universally negative, mining
activity is frequently the lifeblood of many communities around
the world.
Our coal joint venture with Anglo American and Glencore in
Colombia has presented us with issues related to the relocation
of a local community.
The process of relocating the community of Tabaco, to enable
mine expansion, started in 1997, three years before we acquired
an interest.
Exxon, as the operator of the mine at the time, negotiated
relocation agreements with 95% of the landowners. Negotiations
broke down with 18 remaining landowners who were ultimately
relocated in November 2001 in accordance with Colombian law.
Since increasing our stake in the project in 2002 to 33%,
Cerrejon has set about improving relations with the local
communities. This has meant addressing a number of outstanding
issues, including those relating to the 18 aggrieved landowners.
So far, Cerrejon has successfully reached agreement with 9 of
the 18 Tabaco landowners.
Issues have also been raised about the impact our operations
have had on the community of Tamaquitos, also in Colombia. This
community is located 7 km from the mine and has not been
impacted. Claims that the Company has been pressuring local
landowners to sell their properties are not true. The last land
we purchased was bought in 1997 and we have no desire to
purchase any more land in the area.
We know only too well that our continuing licence to operate
depends on balancing the often competing demands of all of the
stakeholders in our business.
Wherever we operate, local communities are critically important
to our success. Our experience tells us that our shareholders
expect us to recognise and address environmental and community
issues as part of our investment decision process and I can
assure you that we do.
Let me give you a brief view on how we see the year ahead.
As the IMF noted in its recent outlook, the performance of the
global economy is at near three-decade highs with strong
activity and low inflation.
Strong demand growth in the US and China has had flow on effects
to the rest of the world. Europe, Japan and Asia have all been
beneficiaries of the improvement in global trade, while
commodity producing nations have benefited from stronger prices.
More recently, indicators point to an easing in growth across
the world, as monetary and fiscal policies are tightened, there
is slowing in economic activity in China from the frenetic pace
of earlier in the year, and high oil prices begin to affect
spending.
Nevertheless, providing countries can successfully manage these
headwinds, a growing global economy, in particular the ongoing
development of China, India and other key emerging economies,
continue to support the near term outlook for commodities.
I will now ask Chip to talk to you about the operations during
the year and how he sees our growth prospects.
CHIP GOODYEAR, CHIEF EXECUTIVE OFFICER, BHP BILLITON
Thank you Don and good morning.
Before I make a few comments on our operating and financial results, I would
like to reiterate what Don has said about our safety performance and
particularly the level of fatalities in FY2004.
We had 17 fatalities in operations controlled by us.
These outcomes are a tragedy for the individuals` families, their work
associates, their communities and for BHP Billiton. And it`s bad business.
Regardless of the financial outcomes, we simply will not be a world-class
company until we are well on the path to achieving our target of Zero Harm.
To be fair to the organisation, there were a number of positive outcomes in the
Health, Safety, Environment and Community area including a decrease in our
injury frequency rates: we saw work-related illnesses decreasing by 13 per cent
and we generated 12 per cent less hazardous waste year over year.
In addition, our assets received numerous safety awards and we received
international recognition for a number of our programs including the Business
Excellence for Innovation Award from the Global Business Coalition on HIV/AIDS,
which was awarded in Berlin earlier this year.
Unfortunately, none of this mitigates even one of the fatalities. We must
strive to continuously improve our performance in this critical area of our
business.
Moving to our operational and financial results, Earnings Before Interest and
Tax, excluding exceptional items, was a record US$5.5 billion.
Particularly pleasing is the fact that every one of our seven businesses, or
Customer Sector Groups (or CSGs) as we call them, increased their Earnings
Before Interest and Tax (EBIT) in the 2004 financial year, compared with the
previous year.
While product price was an important driver for our performance, price alone
does not explain these record results. The consistent execution of our strategy
has positioned us to benefit in times like these. In simple terms, success
happens when opportunity meets preparation. Great prices don`t do us any good
if we don`t have the production.
I would like to talk about our performance in the context of our strategy.
Now we are a very complicated company. We produce products that range from
diamonds to petroleum, aluminium to iron ore, in more than 20 countries on six
continents and sell these products all over the world. We could make the
strategy as complicated as you like, but at the highest level we can also make
it quite simple.
I use a pyramid to illustrate this strategy.
Let`s walk through the various platforms of this pyramid.
The foundation for our company, for any company, is its people. It takes
outstanding people to create a great company. Over time, people identify
resource deposits and develop and manage these assets. It`s people who turn
resource in the ground into world class operating and financial assets.
The next level of the strategy is focussed on the outstanding assets, one of the
cornerstones of our business. Running these assets well is our best and most
efficient form of value creation.
Our ability to do this was demonstrated last year with eight of our commodities
generating record production. These commodities were: aluminium, alumina,
diamonds, iron ore, manganese, nickel, silver and natural gas.
The next platform of our pyramid is creating efficiencies by sharing knowledge
across our various assets around the world. With around 100 assets we have many
instances of `best practice` performance. Through our Operating Excellence
initiative and other cost savings opportunities we`ve achieved US$780 million of
efficiency gains over the last three years.
By institutionalising our methodology through the organisation we create a
sustainable base from which to continue to find efficiencies to improve the
overall performance of our businesses.
The next critical element to our strategy is the identification and execution of
our growth projects.
Since July 2001 we have completed 17 projects, with a total budgeted cost of
US$4.2 billion. We have delivered all projects to time and cost, or better, and
have saved some US$300 million relative to the Board approved costs. This
demonstrates the value of our commitment to a process that includes a consistent
investment review methodology, including significant front-end loading prior to
project approval.
We have also seen a steady growth in profit margins and Return on Capital. In
FY04 the EBIT margin was almost 30% and ROC was over 21%. This comes from a
number of factors, including maximising the performance of our existing assets,
achieving economies of scale across the organization, applying our Operating
Excellence program in each of the businesses, the delivery of our substantial
project pipeline on time and on budget, our customer-centric marketing approach
and the recent improvement in commodity prices.
This slide shows the growth in EBIT since the merger, broken down into half-year
results.
The main point to note here is that in three years we have more than doubled our
half-year EBIT from just under US$1.6 billion in the six months to December 2001
to US$3.3 billion in the six-month period to June 2004.
You may mistakenly think that oil prices have driven this performance. Not so;
despite the increased oil price, earnings from the Petroleum CSG were up only
37% over this period, most of the increase coming from the other Customer Sector
Groups.
While our progress over the last three years has been very good, the next
question is `where to from here?`. The simple answer is, more of the same. We
must continue to do the things that got us here: identify great people; get the
most from our installed asset base; identify efficiency opportunities; and
deliver our projects. To that end, let me show you our current project
pipeline.
Now, many of you will have seen this slide before: it represents our current
suite of projects under development and those in the feasibility stage.
There are 24 projects here representing approximately US$8.6 billion in growth
expenditure over the next three-and-a-half years.
This year the Board approved the innovative Escondida Sulphide Leach project in
Chile, the Ravensthorpe project and Yabulu expansions in the nickel business,
the series of projects to increase alumina production at Worsley in Western
Australia and the Panda Underground project at the Ekati diamond mine in Canada.
In the 2004 financial year, we added seven new projects to this pipeline. This
pipeline will continue to develop as projects progress to execution and to the
feasibility stage.
In FY05 we expect capital expenditure to be around US$4 billion, including
US$2.4 billion on growth project development and US$450 million on exploration.
This is more than we`ve spent in any annual period in our history.
Having run through with you our overall strategic focus and our success during
the 2004 financial year, I would like to briefly mention some of the external
factors affecting our industry.
The growth of China has been discussed and analysed at length by many
commentators and is certainly an important factor affecting our business. This
slide shows our sales growth in China over the last couple of years including
the breakdown by commodity.
We believe the demand for commodities in China is sustainable over the long-
term.
Having said that, China, as with any economy, will have bumps and bruises along
the way. It is critical that a company like ours maintains a low-cost operating
position and a strong capital structure to ensure we are able to benefit even
during inevitable periods of softness.
We also need to watch the potential development of economies such as India and
Brazil, where there are large population bases capable of having a significant
impact on the supply/demand equation for commodities.
The developed economies in the world also have an important impact on our
business. While growth picked up over the last year, the current period of
lower growth and higher energy prices has caused concern, particularly among the
financial pundits. Having said that, our business continues to show positive
fundamentals characterised by solid demand and certain supply challenges.
While we cannot accurately predict the exact shape these economies will take or
the pace of their development, my job, and that of the senior management at BHP
Billiton, is to ensure that the company creates options to take advantage of and
deliver value from whatever opportunities arise.
Whatever the climate, I believe that our achievements to date demonstrates our
ability to create value through a variety of economic environments.
Finally, I would like to thank all BHP Billiton`s employees for your efforts
over the year. We can be proud of many of our achievements. These record
results would not be possible without your efforts.
Having said that, we mustn`t be complacent. There is much to be done and many
opportunities for BHP Billiton. With our Charter, the Guide to Business
Conduct and our Health, Safety, Environment and Community standards as the
fundamental principles behind our performance, we will continue to strive to
maximise the long-term returns to our shareholders.
Thank you.
I`ll hand back over to Don.
The Chairman then conducted the formal items of business.
-Ends-
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number
3196209
Registered in Australia Registered in England and Wales
Registered Office: 180 Lonsdale Street Neathouse Place
Melbourne Victoria 3000 Australia London SW1V 1BH United Kingdom
Tel +61 1300 55 4757 Fax +61 3 9609 Tel +44 20 7802 4000 Fax +44 20 7802
3015 4111
A member of the BHP Billiton group which is headquartered in Australia
Date: 26/11/2004 09:11:43 AM
Produced by the JSE SENS Department
