26th Oct 2006 10:30
BHP Billiton PLC26 October 2006 26 October 2006 To:Australian Stock ExchangeCompanies Announcements Office London Stock ExchangeCompanies Announcements Office cc:New York Stock ExchangeSwiss Stock ExchangeJohannesburg Stock ExchangeDeutsche Bank For Announcement to the Market In accordance with Listing Rules 3.13.3 of the Australian Stock Exchange, pleasefind attached addresses to shareholders at BHP Billiton Plc's Annual GeneralMeeting currently being delivered by the Chairman and the Chief ExecutiveOfficer. As part of the Dual Listed Company structure of the group, the business to beconducted at the Annual General Meeting will be determined by polls. The pollresults will not be known until the conclusion of BHP Billiton Limited's AnnualGeneral Meeting which will be held in Brisbane on 29 November 2006. The resultswill then be communicated to the market. Yours sincerely K J WoodGroup Company Secretary BHP Billiton Plc Annual General Meeting Speeches by Don Argus, Chairman, BHP Billiton and Chip Goodyear, Chief Executive Officer, BHP Billiton 26 October 2006 Don Argus, Chairman, BHP Billiton Good morning ladies and gentlemen and welcome to the 2006 Annual General Meetingof BHP Billiton Plc. My name is Don Argus, and I will Chair today's meeting. Your directors are here today and it is my pleasure to introduce them. Next to me on your right is Chip Goodyear, our Chief Executive Officer. Next to Chip are Gail de Planque, David Jenkins, Marius Kloppers, Jac Nasser,Mike Salamon and John Schubert. To your left we have David Brink, John Buchanan,Carlos Cordeiro and David Crawford. Also to your left is Alex Vanselow our Chief Financial Officer and our GroupCompany Secretary, Karen Wood. And joining us by video conference today are Paul Anderson and Chris Lynch. Before I introduce the auditors, on your behalf I would like to welcome Chris,Jac and Marius to their first annual general meeting as directors and Paul tohis first since rejoining our Board. Today is the last meeting for Mike Salamon who leaves BHP Billiton after morethan 20 years with the Group and its predecessor companies. Mike has been a trueleader and has played a key role in creating the organisation we are today. I know Mike's decision to retire from BHP Billiton has been assisted by theknowledge that he leaves us in a very healthy state, reporting yet another setof record numbers, and as the leader in our industry. On your behalf I thankMike for his tireless efforts and commitments to the Group. Also here this morning are Chris Jenkins and Peter Nash, representatives fromthe Group's external auditors, KPMG. Let me now run through today's agenda. Again we have a considerable amount ofbusiness to cover with 32 items. Given this, I propose to manage the agenda for this year's meeting in a way thatwill provide a sharper focus on the issues that shareholders have said are ofinterest to them. I will specifically cover capital management and dividend policy. These are thekey areas that shareholders have said they want covered. And I will discuss the outlook for the company. Chip will then talk to you about our operational performance. Following Chip's address I will move to the formal items of business and thenopen the meeting for questions from the floor. Of course, you will have theopportunity to ask questions on the specific items of business as the meetingconsiders each of these. At the end of the meeting, the directors and the management team would like youto join us outside for some light refreshments. For reasons of consistency, as we go through today's proceedings both Chip and Iwill talk in US dollars, as this is the currency we report in. This year BHP Billiton recorded a profit of $10.2 billion. Today our market capitalisation is around $120 billion. In the five years since the merger we have invested nearly $15 billion in growthprojects and acquisitions to help create the world's largest diversifiedresources company. In fact we now account for about 16 per cent of the totalvalue of the world's publicly traded minerals industry. But size of itself is not important. What is important is how we generatesustainable returns for our 420,000 shareholders and for the millions of peoplearound the world who have entrusted their savings to those institutions whoinvest in BHP Billiton on their behalf. The foundation of our strategy is to have the best people at every level in BHPBilliton. As we have seen in our history and with other companies, great assetsdon't manage themselves. Great assets need great people to deliver value. In talking about our people, I believe it is appropriate to pay tribute to Chipand his management team, and all the employees and contractors across the Groupwho have delivered the results we are discussing today. They have really made an outstanding effort. Let me now turn to our approach to capital management and dividend policy. Effective management of our capital is a key imperative for us and involvesdecisions about how we use our cash flow. Decisions must be made about whetherto invest in new projects, reinvest in existing operations, pay off debt, orreturn free cash to shareholders through dividends or share buy-backs. BHP Billiton's strength is built on a portfolio of low cost, long life, highquality assets that generate significant value over extended periods of time. We must continually invest in new and existing projects, sometimes many years oreven decades ahead of when those investments will generate returns. As I mentioned earlier, we have invested nearly $15 billion in these operationsover the past five years. We adopt a disciplined approach to all our decisions to invest capital. This is especially important in a market where demand for resources is strong.We have to make sure the fundamental economics are sound no matter where we arein the cycle, and we have to ensure those projects are operated as efficientlyas possible over their life. It is only after we are satisfied that the level of capital investment issufficient to drive sustainable long-term returns to shareholders, that weconsider returning funds. These returns are led by dividends. Our progressive dividend policy aims tosteadily increase the dividend at each half yearly payment. This is something wehave done since the merger in 2001. In the last three years, we have increased the dividend by more than 148 percent. In addition to dividends we regularly review other ways in which to return fundsto shareholders. In May this year we completed a $2 billion buy-back of both Ltd and Plc shares.At our recent full year results announcement in August we committed to anadditional $3 billion in share buy-backs over 18 months. At the end of this latest buy back program we will have returned over $15billion to shareholders since June 2001. The other questions shareholders asked me fall into two broad categories. The first, deals with energy supply and BHP Billiton's role in providing energysolutions. The second deals with executive remuneration which I will cover when we ask youto consider the remuneration report later in the meeting. Let me return to energy supply and start with some comments about uranium. When we acquired WMC Resources just over a year ago, we added the Olympic Damcopper, uranium and gold operation in South Australia to our portfolio. Olympic Dam is the largest known uranium resource in the world. We are workingthrough our planning process so that we can expand that mine and increaseproduction. As a major producer of uranium, we have to meet the strictest environmental,health and safety standards. We believe we also have a responsibility toparticipate in the global discussion about the use of uranium as an energysource. All forms of energy, from fossil fuels to wind, oil and nuclear, have advantagesand disadvantages. What governments and their citizens have to do, is find thetrade-offs they are prepared to make when they decide on the energy sources theywill use. For instance, countries such as France and Germany have long used uranium as amajor source of their energy needs. Other countries are only now beginning tolook at nuclear power as a logical answer to their rapidly increasing energyneeds, and to help mitigate the impact of fossil-fuel energy on climate change. Over the last few months there has been some discussion about whether Australiashould allow its uranium to go to China and India. In the case of China, it and Australia now have a safeguards agreement that willensure that Australian uranium sold to China will be used exclusively forpeaceful purposes. India is yet to satisfy the conditions of Australia's uranium export policy anduntil those conditions are met, Australian uranium will not be exported toIndia. I want to show you some data that help explain why India and China areconsidering nuclear power and why BHP Billiton is well placed to supply theuranium they will require to meet their energy needs. This slide compares the average global costs of generating electricity fromvarious sources. While there are regional differences in the relative costs of power generation,you can see that coal-fired electricity generation is the least expensive. Coal is also an attractive fuel from the perspective of energy security - it isabundant and many countries have their own domestic supplies. On average, nuclear generated electricity today costs about 60 per cent more toproduce than electricity from coal. However it is worth noting that in somecountries such as the United States, generation costs have converged. This makesnuclear and coal almost equally competitive. The average cost of non-hydro renewables such as wind and solar is about 130 percent higher. Oil is by far the most expensive source of electricity, being 160per cent more expensive than coal-fired power generation. Going forward, we expect the cost differential to close for new power plants asnew technologies and market conditions alter their relative competitiveposition. We produce four of these energy sources - coal, gas, uranium and oil - and wesee all of them playing an important role in meeting the world's current andfuture energy needs. If you look at the expected growth in energy consumption from 2001 to 2050, youcan see that compared with the United States and the EU, the energy consumptionof India and China is expected to increase dramatically. That's hardly surprising given the pace at which those economies are developing. But it means that access to a whole portfolio of energy sources, includingnuclear, will become even more vital for the developing countries. No responsible company or government can ignore the full range of energyoptions. Of course, programs to encourage energy efficiency are equally important. Buteven with strong energy efficiency initiatives there will continue to be asignificant and growing requirement for additional sources of energy into thefuture. Access to affordable energy, minerals and metals is critical to taking peopleout of poverty and driving social and economic change. One of our challenges asa member of the global society is to help meet the world's minerals and energyneeds, while mitigating the potential impact of greenhouse gas emissions onclimate. Our approach to this challenge includes controlling the emissions that weproduce at our sites. We also contribute to research and development that willhelp reduce the emissions of our customers both now and in the future. I hope that helps set the scene for how we see the demand for energy sourcesdeveloping over the coming decades. Clearly there is a huge prize for those countries that get their energy mixright over the next 50 years. Finally, I'd like to give you some idea of how we see the year ahead. While rates of growth around the world are likely to slow from the very stronglevels we've seen, we view the global economic outlook as positive. Growth in north east Asia will continue to be a major driver of the globaleconomy. Japan's expansion is well-established and China's economic growth isexpected to remain strong, even if the attempts to cool recent accelerations aresuccessful. Clearly, the U.S. economy is slowing from the rapid growth experienced earlierin the year but we expect it to remain solid. This all means that the demand outlook for commodities is encouraging. But theoutlook is not without risk. Escalating geopolitical tensions, supply disruptions and high energy prices areadding increased uncertainty in markets. We expect that natural and man-made events will continue to disrupt the supplyside of the commodity chain. As well, regulatory approvals and rising capitalcosts are delaying project developments. The likely outcome of these circumstances is an extended period of high cyclicalprices for the commodities that BHP Billiton produces. Chip and his team are also to be commended on the work they have done to makeBHP Billiton a more sustainable company. Part of that work is to ensure thecommunities in which we operate share in our success. Over the last five years our commitment to spending at least 1 per cent of pretax profits on community programs, has seen us invest over $250 million incommunities around the world. These include educating poor children in Chile, providing medical care topregnant women in Colombia and reducing the global impact of malaria. Before I ask Chip to speak to you, let's have a look at a short video showingsome of the community programs we've helped support at the Mozal aluminiumoperations in Mozambique. I'll now ask Chip to talk to you about the operational performance of the groupduring the year and the opportunities we have to continue to build on thesuccess of this company. Chip Goodyear, Chief Executive Officer, BHP Billiton Thank-you Don. As you've heard this morning, it has been another excellent year for BHPBilliton. I'd like to take you through some of the highlights as well as outlinehow the Group is placed to ensure we continue to perform for our shareholders. Let me begin with safety. Our primary safety indicator, the Total RecordableInjury Frequency Rate, was flat for the year. The first half of the year saw a deterioration in this indicator due to a numberof issues including the integration of the WMC assets into BHP Billiton. But inthe second half of the year we saw our safety numbers improve, which of courseis consistent with our aspiration to Zero Harm. We did see some particularly good things in our safety indicators, including animprovement in our identification of significant incidents and our sharing ofknowledge about those incidents throughout the organisation. We also had a 28per cent improvement in the duration rate, which measures the severity ofinjuries. Moving onto our financial and operational results. Earnings Before Interest and Tax was up 54 per cent on the previous year to morethan $15 billion. This is the third year of record performance. While the prices of the products we produce were certainly an important factorin achieving this result, prices are irrelevant without production. Over the last five years, we have completed 30 new projects, with four of thosebeing completed and commissioned in the last financial year. These projects spana broad range of commodities and have contributed significantly to ourproduction volumes. For the 2006 financial year, we set record production for five major commoditiesand two minor commodities. Over the past five years, we have delivered an average volume growth in ourmajor products of 38 per cent. And that is despite having sold a number ofproducing assets that no longer fit our portfolio. So the bottom line is that we have positioned ourselves with significantlyhigher product volumes which have allowed us to maximise the opportunitypresented by the current price environment. This slide shows our 2006 earnings from each of our seven customer sectorgroups. Five of these achieved record earnings. Petroleum underlying EBIT increased by 24 per cent to $3 billion. Higher productprices contributed significantly to this result, along with the volume from newoperations such as ROD in Algeria, Mad Dog in the Gulf of Mexico, Angostura inTrinidad and Tobago and Minerva in Australia. The Board approved three new petroleum projects during the year - two inAustralia and one in the Gulf of Mexico. This is a photograph of our Atlantis project that is now on location at its sitein deepwater Gulf of Mexico. Production from Atlantis and from our otherdiscoveries in the Gulf of Mexico will increase our production of oil and gasover the next five years. In the Aluminium CSG, underlying EBIT increased by 24 per cent to $1.2 billion.Higher prices were achieved for both aluminium and alumina. The benefits of ourtechnical expertise are evident at the Mozal and Hillside aluminium smelters insouthern Africa, where production records were set again. Base Metals underlying EBIT rose 149 per cent to $5.4 billion. We had recordcopper production during the year, with the highest ever production from bothEscondida in Chile and Antamina in Peru. The integration of Olympic Dam in SouthAustralia made a significant contribution to volumes and all this was achievedat a time of record copper prices. Two copper projects in Chile were completed during the year and another, Spence,which you can see here, is on schedule to start producing in December this year.At full capacity, Spence will be one of the 20 largest copper mines in the worldtoday. Carbon Steel Materials - that is iron ore, coking coal and manganese - recordeda 61 per cent increase in underlying EBIT to $4.5 billion. This was largelydriven by higher product prices and record iron ore sales. With seven CarbonSteel Materials projects in our pipeline, volume growth will continue to bedelivered in all three commodities. The underlying EBIT for Diamonds and Specialty Products decreased by $215million to $345 million, mainly due to lower value material being produced atour EKATI diamond mine in Canada. While the lower diamond grades will continueto impact earnings from EKATI, in the medium term increasing production from thenew Koala pit will help restore profitability. The underlying EBIT for Energy Coal decreased by 44 per cent to $327 million.Prices and volumes of thermal coal were largely flat during the period but weexperienced the same cost pressures here as being faced across the industry. Wedid however achieve annual production records at both Cerrejon Coal in Colombiaand our New Mexico operations. In the Stainless Steel CSG, underlying EBIT of $901 million was up 27 per centover 2005. The Nickel West business in Western Australia that we acquiredthrough the purchase of WMC, made a significant contribution to our earnings. As well, Cerro Matoso in Colombia had annual record production. The Yabuluexpansion in Queensland, Australia is on track for delivery next year, howeverthe budget and schedule for the Ravensthorpe nickel project in Western Australiais under review. This is a recent photograph of the Ravensthorpe nickel project. We are lookingforward to increasing our overall production of nickel when Ravensthorpe comeson line but the reality is that cost pressures in the industry and low contractlabour productivity have had an impact on our progress. This is our current pipeline of projects that are either in the feasibilitystage or under construction. There are 23 projects represented here with acapital cost of approximately $14 billion. Seven of these projects were approvedfor execution in FY06. As I said earlier, we have already brought on line 30projects in the past five years. So why are we reinvesting so much money in expanding our production capacity? What's happening is that after years of under-investment, the world hasrediscovered resources and the critical role they play in our daily lives. Todaythere are billions of people in developing economies of the world who neednatural resources to support their economic and social development. For a variety of reasons, the industry is finding it difficult to respond to theincreased demand for commodities. And that gives BHP Billiton, with our size and scale and footprint, acompetitive advantage. We have excellent opportunities for growth through those projects I've shown youand we have the capabilities to bring them on line in a way that adds value toour business. Of course, it's important to look beyond this decade and we are doing this bycontinuing our expenditure on exploration and technology and looking at newopportunities around the world. So either alone, or as part of our JuniorAlliance program, we have more than 200 projects in early stage assessments in35 countries around the world. We don't try to predict where commodity prices will be either tomorrow or in thenext decade. But we do believe that solid product demand and a supply side thatstruggles to keep up will characterise our industry in the short to medium term. We will continue to maintain our focus on large, low cost, long reserve lifeassets while preparing for a future where billions of people entering the globaleconomy from the developing world need the essential products that we produce toprogress social and economic development. Of course to do this, we need to be looking to acquire and develop projects inemerging parts of the globe. To find the next generation of opportunitiesrequires us to go beyond Australia, North America, South Africa and LatinAmerica. And we have an excellent track record of success in places likeMozambique, Pakistan, Algeria and Colombia. We must continue to explore for anddevelop resources in Africa and Asia as well as pursue technological challenges. Our commitment to sustainable development is essential for the success of BHPBilliton. Before I hand back to Don I'd like to thank all of our employees and contractorsfor their continuing efforts and contribution to what has been another excitingyear. We have a global workforce that has shown itself more than able to adaptto the rapidly developing environment and find new and better ways of meetingthe challenges. Don Argus, Chairman, BHP Billiton Thanks Chip. The Chairman then conducted the formal items of business. A key plank of our remuneration policy - published in the annual report - is thecommitment to link executive pay to the creation of value for shareholders. To achieve this, remuneration is broken into fixed and at risk components. The fixed component is made up of base salary, retirement and other benefits. Pay at BHP Billiton is set at industry average levels. BHP Billiton is not thehighest or the lowest payer in our industry. To give you a feel for where we sit, we have taken 17 companies in ourcomparator group and plotted the pay rates for their Chief Executives. You cansee that BHP Billiton sits at around the mid range. The largest component of executive pay is the at risk piece which is only earnedwhen performance measures that are linked to the creation of shareholder value -are met. This can be illustrated by looking at the Chief Executive's pay for 2006. The slide on the screen shows you the fixed and at risk components. You will see the value of the at-risk piece was about 60% of the total. To show how Chip's pay is aligned to shareholder value, let me show you what hashappened since 2003. Chip's total pay has increased by 48.1 per cent since 2003. For the same periodthe total shareholder return (that is the total of the share price and thedividends paid) has increased by 305 per cent. You will agree I am sure, that the link between pay and performance is clear. I will talk more about the executives' performance measures in a few moments. Before asking you to consider the Remuneration Report I would like to raise oneother matter and that is the supplemental bonus which the Board agreed to payfor the 2006 year. The circumstances leading to this decision were unusual. As I said in my openingremarks, the 2006 year was the most successful in BHP Billiton's history. Profit attributable to shareholders increased by over 63 per cent, revenue byover 20 per cent and earnings per share by over 65 per cent. This resulted in the Company being able to increase its dividends by over 28 percent. The performance measures we have set our executives are disclosed in theRemuneration Report. We also disclose their achievement against those measures. When we assessed the performance of executives for the 2006 year, it was clearthat the bonus levels were substantially below those paid in 2005. In these circumstances the Board had to make an assessment as to whether anyadjustment should be made. In making that assessment the Board weighed the risks associated with retentionof key people at a time when the global resources industry was at an all timehigh. The Board elected to pay a supplemental bonus and in doing so: • capped the total amount of money that could be paid; • assessed the amount payable to each executive against his or her individual performance; • satisfied itself that the margins earned by the Company had not been reduced (in fact margins increased from 40 per cent in 2005 to 44 per cent in 2006); and • made it clear that this bonus was a "one off". Your Board believes that this was the right approach to take. Some shareholders have quite rightly asked whether this shows a flaw in the waywe set performance measures. While the Board does not believe we should make wholesale changes to thosemeasures as a result of this one year, we will review them and if we decide thatchange is necessary we will consult with shareholders before any final decisionis taken. I spoke earlier of the need to ensure that there is a link between executive payand the creation of shareholder value and you saw how the Chief Executive's payincreased at the same time as the total shareholder return increased. Our Long-Term Incentive Plan operates over five years and has been designed toensure that when shareholders see value created, so do the executives. We are asking you today to award 600,000 performance shares in that Plan toChip. For him to receive a single share of the 600,000 BHP Billiton's totalshareholder return must exceed the median of our comparator group. Simply achieving the same shareholder return as any other company is not enough. For him to receive all of the 600,000 shares BHP Billiton's total shareholderreturn must exceed the comparator group by 5.5 per cent each year for the fiveyears of the plan. This equates to exceeding our comparator group by a cumulative 30 per cent overthe five years - a result I am sure you would agree, is exceptional forshareholders and executives alike. While this share award is potentially lucrative, it includes very stringentperformance conditions. These include: • A five-year performance period • No award unless our TSR exceeds industry averages - and • Full vesting of the award requires top performance compared to our industry peers. The combination of these conditions results in the expected value of theperformance shares being only 31 per cent of the face value of the shares. Don Argus, Chairman, BHP Billiton In closing the meeting, let me say again that the results for the 2006 financialyear are an indication of the strength of the BHP Billiton Group. BHP Billiton is in excellent financial shape. We have very strong cash flows andmargins, outstanding leadership, a committed workforce and an impressivepipeline of growth projects. Your Board and management are focussed on ensuringthat shareholders, our employees and the community at large continue to share inour success. BHP Billiton Limited will hold its Annual General Meeting on the 29th ofNovember. The results of both meetings will be notified to the stock exchangesafter that time. - Ends - BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209Registered in Australia Registered in England and WalesRegistered Office: Level 27, 180 Lonsdale Street Melbourne Registered Office: Neathouse Place London SW1V 1BH UnitedVictoria 3000 KingdomTelephone +61 1300 554 757 Facsimile +61 3 9609 3015 Telephone +44 20 7802 4000 Facsimile +44 20 7802 4111 The BHP Billiton Group is headquartered in Australia This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BHP Group