20th Oct 2005 10:40
BHP Billiton PLC20 October 2005 Company Secretary BHP Billiton Limited BHP Billiton Centre 180 Lonsdale Street Melbourne Victoria 3000 Australia GPO Box 86A Melbourne Victoria 3001 Australia Tel +61 1300 55 47 57 Fax +61 3 9609 4372 Bhpbilliton.com 20 October 2005 To: Australian Stock Exchange cc: New York Stock Exchange Companies Announcements Office Swiss Stock Exchange Johannesburg Stock Exchange London Stock Exchange Deutsche Bank Companies Announcements Office 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 Perth on 25 November 2005. The resultswill then be communicated to the market. Yours sincerely K J Wood Company Secretary ______________________________________________________________________ BHP Billiton Plc Annual General Meeting Speeches by Don Argus, Chairman, BHP Billiton and Chip Goodyear, Chief Executive Officer, BHP Billiton 20 October 2005 Don Argus, Chairman, BHP Billiton Good morning. My name is Don Argus, and I will Chair today's meeting. Welcome to the 2005annual general meeting of BHP Billiton. I propose to take the Notice as read. If you need a copy of the Notice, pleaseask one of the attendants. Minutes of our last meeting are available forinspection in the registration area outside. All of your directors, save Lord Renwick are here today. You can read fulldetails of their backgrounds and qualifications in the Annual Report. Unfortunately Lord Renwick could not be with us today and sends his apologies. Let me now introduce them. Next to me on your right is Chip Goodyear. As you know, Chip is both anExecutive Director and our Chief Executive Officer. Next to Chip are Mike Salamon, David Brink, our newest director Gail de Planque,John Buchanan and Michael Chaney. To your left we have Carlos Cordeiro, whojoined the Board in February this year, David Crawford, David Jenkins and JohnSchubert. And also to your left is our Company Secretary, Karen Wood. On your behalf I would like to welcome Gail and Carlos to their first AnnualGeneral Meeting. Gail is a nuclear physicist and world authority in the field of nuclear energyand regulation, and Carlos brings to the board more than 20 years' experience inproviding financial and strategic advice to corporations, financial institutionsand governments around the world. On the other hand, this is the last meeting for Michael Chaney and Lord Renwick. Not only have Michael and Robin made a strong contribution to the development ofa high-performing company, both played key roles in the integration of BHP andBilliton following the merger. There is never a right time for hard-working, quality directors to leave a boardand, on behalf of all shareholders, I thank them both for their commitment andcontribution to the development of this group. Their wise counsel will bemissed. 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. It's a full agenda, with 21 items ofbusiness. I will talk briefly about the financial results for the 2005 year, a year inwhich BHP Billiton delivered another record result. I'll discuss the company's broader performance and how we continue to add valuefor shareholders. And I'll talk about how we see the year ahead. Chip will then talk to you about the operational performance of the company.Then I will discuss some of the questions that shareholders have sent to us,open the meeting for your questions from the floor and, after that, move to theformal items of business. At the end of the meeting, the directors and the management team would like youto join us upstairs, in the Pickwick Suite for some light refreshments. Last year, after a record profit, I asked Chip, on your behalf, "can you sustainthis level of performance?" Not only has the performance been sustained, Chip's team turned in a new recordprofit. The group performed financially and, importantly, we continued to buildfor the future, both through new projects and strategic acquisitions. WMCResources adds a further suite of long life assets in nickel and copper, as wellas expanding our energy portfolio to include uranium. For this reason, Ibelieve 2005 has been a hallmark year in the history of BHP Billiton. We have dramatically improved safety while, at the same time, delivering ourbest ever financial results, creating value for shareholders, and delivering onour commitment to the broader community and environment. I would like to pay tribute to all our employees and contractors who have sosignificantly contributed to this outstanding performance. BHP Billiton in 2005 is a very different resources company. It is very different to the BHP and Billiton companies that came together fouryears ago. Through the work of Chip and his team, BHP Billiton is the world's largestdiversified resources company, with a market capitalisation of around 90 billiondollars, and the only one with a full suite of energy products. I'll return tothat theme later. A critical area that Chip and his team are focussed on is safety. I am verypleased to be able to report to you that our safety performance has dramaticallyimproved at a time when we set new production records across the company. However, we still suffered three fatalities during the year and we have had onefurther fatality in the current financial year. The only acceptable bottom linefor the board and the management team is no accidents and no fatalities, and Ican assure you that everyone in this company of 37,000 employees, and around60,000 contractors, is working hard to achieve that goal. Turning to the results. At the outset, let me remind you that all the dollarswe will talk about are US dollars unless otherwise stated. As you know, weoperate and report in US dollars so Chip and I will remain consistent with thattoday. On any measure our 2005 results were outstanding: - the injury frequency rate dropped by 21 per cent; - revenue was up 28 per cent to 31.8 billion dollars; - attributable profit of 6.5 billion dollars was up 86 per cent on2004's then record profit; - available cash flow increased by 70 per cent to 8.6 billion dollars; - we returned around 1.7 billion dollars in dividends to ourshareholders; - we acquired and have successfully integrated WMC Resources; - we completed a 1.78 billion dollar share buy-back; - and we completed eight major growth projects with ten more currentlyunder development. And we did all this while maintaining our Moody's single A credit rating andStandard and Poor's A+ stable rating. One of our critical jobs as a Board is to ensure that every dollar invested bythe company on your behalf is used to create long-term value for allshareholders. During the year we successfully completed both stages of a 2 billion dollarcapital management program. The program enabled eligible shareholders toparticipate in an off-market share buyback and enabled us to return anadditional 220 million dollars to shareholders in the form of increaseddividends. I will talk more about our dividend policy later. I said earlier that BHP Billiton is a very different resources company. One ofthe ways we are different is our focus on sustainable, value-creating growth. Asimple demonstration of this is the value of a shareholding in BHP Billitontoday. If you had invested 1,000 dollars in Billiton in 1998, it would be worthnearly 9,000 dollars today - a compound annual growth rate of 36 per cent. The acquisition of WMC Resources was integral to our strategy of creatingsustainable long term value. For instance, WMC expanded our presence in energy. Access to reliable, reasonably priced energy is the foundation for thedevelopment of emerging economies and for improving their living standards. WMC's assets have strengthened our ability to participate in the energy sectorand, therefore, in the development of those economies. With the rapid urbanisation of many regions of the world, energy demand islikely to increase faster than population growth over the next decades. At thesame time, the proportion of the world's population supplied by electricity willgrow faster still. The key question is where that energy is going to come from. Today, worldwide,79% comes from fossil fuels, 7% from nuclear fission, 11% from bio mass andwaste, 2% from hydro, and 1% from renewable sources. There is no prospect thatwe can do without any of these energy sources. So, meeting the world's future energy needs will require a mix of fuels,including fossil fuels, uranium and renewable energy sources. We believe that uranium has an important role to play in meeting the world'sgrowing energy needs. It also has the potential to help address the issues ofglobal climate change along with clean coal technologies, renewables and otherenergy-efficient programs. With our existing thermal coal and oil and gas assets, plus the acquisition ofthe Olympic Dam copper and uranium operations from WMC, we are well-positionedto participate in the increase in demand for energy around the world. So, the new BHP Billiton is positioned for continued sustainable growth in arapidly changing world. In the four years since the merger, the value of theGroup has increased from 28 billion dollars to around 90 billion dollars. Thatis a direct reflection of the increase in the value of your investment in thecompany. This slide shows BHP Billiton's market capitalisation relative to the rest ofthe industry in 2001 and where it sits today. While the current economicclimate is good for the resources industry generally, BHP Billiton hassignificantly out-performed within the sector. Not only is the financial performance world class but this is a company that isbecoming world class in every aspect of its business. In our commitment to the environment, to safety, to our relationships with, andour contribution to the communities where we operate, and to corporategovernance, BHP Billiton in 2005 is an organisation that shareholders, employeesand communities can be proud of. On behalf of the board, and Chip and his management team, I can assure you thatwe will continue to strive for excellence in all aspects of our business. While you will have received copies of our annual report there are some otherreports and documents I believe are equally important. Outside in the foyer we have copies of our Sustainability report. We used tocall this report our Health, Safety, Environment and Community report but webelieve sustainability better reflects its purpose. The full version of this report is available on our website. The reportoutlines our key policy positions and the management standards we have put inplace to ensure we do what we say. It covers a range of areas from communityrelationships to the environmental challenges and ethical issues we face. I am also very pleased to be able to take the opportunity to launch our newcommunity programs report. This document, titled "Yesterday, Today, Tomorrow"is also available in the foyer or from our website. It shows some of thecommunity support programs we have in place around the world. As you know, wehave a stated commitment to spend 1% of our pre-tax profit on communityprograms. Now let me give you a view on how we see the year ahead. When we announced our results in August, some commentators were disappointedthat our outlook statement seemed a little subdued. That was despite our comments that we expected commodity prices to remain highby recent historical standards. We have not retreated from our projected capital spend of around 6 billiondollars on projects and exploration this year. We remain optimistic about thegrowth prospects of China, India and Russia. The United States continues togrow, and Japan and Latin American countries are beginning to exceed growthexpectations. That said, we are working in an environment where geopoliticalunrest will continue to cast a shadow over the world. We take a pragmatic view on the value drivers of the Group and we still expectcommodity prices to remain high by historical standards, although it is notunreasonable to expect that prices will ease from their highs as new supplycomes on stream to meet strong demand. Our strategy continues to be to build a diversified geographic and productplatform to enable BHP Billiton to deliver sustainable value regardless ofeconomic conditions and at any stage of the cycle. Our pipeline of major projects - those that are currently either in developmentor in what we call 'feasibility' stage, demonstrates this strategy. Each of these projects goes through our robust evaluation process to determinethat they will be low-cost, long-life assets that deliver value, regardless ofglobal economic conditions. I will now ask Chip to talk to you about the performance of the operationsduring the year and how he sees our growth prospects. After Chip's presentation, I'll take questions from shareholders before weproceed with the formal items of business. Chip Goodyear, Chief Executive Officer, BHP Billiton Thank-you Don You've heard this morning about our financial results for the '05 financial yearand the strong total return to shareholders over the last several years. I'd like to look at some of the highlights of the year from an operationalperspective, to help explain how the efforts of everyone working at BHP Billitonare directly contributing to our current performance. Firstly in the area of safety, we achieved a 21 per cent underlying improvementin our Classified Injury Frequency Rate. The CIFR, as it is known, is animportant measure as it effectively records every injury where the individual isunable to return to their normal work. And this covers our direct employees andcontractors. We have now gone to a metric of measuring Total RecordableInjuries, which is an even broader measure of safety performance. It is the very nature of accidents or incidents, particularly in our industry,that the same occurrence can result in anything from no injury to a fatality,depending on the precise circumstances. So it is vital that we eradicate thebehaviours and activities that lead to any of these injuries - not just tofatalities - hence our focus on this measure. We did have three fatalities during FY05 and, while that's an improvement on the17 in the previous year, we must continue to focus on achieving our Zero Harmtarget. Our people have produced some great results in the environment and communityareas over the last several years and we were honoured to receive the 'Companyof the Year" award from the Business in the Community organisation here in U.Kin July. We are the first company in the extractive industries to win the awardand it was a great reflection of the work of our people around the world. We are all hearing about the strength of demand for commodities globally and thehigh prices that are being achieved in the current environment. It might seeminevitable that a company like BHP Billiton, with such a diverse spread ofproducts, is going to achieve record profits in this high-demand environment.But it is important to remember that years like this happen when preparationmeets opportunity. Indeed, every one of our seven Customer Sector Groups produced higher earningsin 2005, before interest and tax, compared to the corresponding period. This chart shows those increases: in the Petroleum CSG, EBIT increased by 32 percent; in the Aluminium CSG, EBIT was up by 26 per cent; Base Metals was up by anextraordinary 88 per cent; and Carbon Steel Materials, which of course comprisesiron ore and coking coal, was up by 148 per cent. Diamonds and Speciality Products' EBIT was up by eight per cent; Energy Coalincreased by 163 per cent and Stainless Steel Materials increased EBIT by 33 percent. These increases are not simply a result of high prices. To appreciate whatdifferentiates this company, BHP Billiton, from others, it is important tounderstand what the company is doing, and did during the '05 financial year, toactively capture the benefits of the high demand and price climate. During the year we achieved record volumes in eleven commodities. That meansthat at this time of high demand for our products, we were able to producegreater quantities of eleven of our commodities than ever before. Thosecommodities were: natural gas; aluminium, alumina, copper, silver, lead, ironore, coking coal, manganese ore, manganese alloy and nickel. If we look at volume growth over the last four years, we have seen more than 50per cent growth in nickel and silver production, more than 40 per cent growth iniron ore, manganese ore and alumina and more than 30 per cent growth in copper,aluminium and natural gas. The increases in our volumes are the result of two important actions over thelast several years. First, there are the improvements made at individual operations through what wecall 'business excellence' initiatives. Let me give you a few examples ofthese. The manganese we produce from our Gemco operation on Groote Eylandt in northernAustralia is an important component of steel-making. A team of our people gottogether with the aim of increasing the rate of which ore could be fed to theconcentrator where the ore is processed. First of all, the team identified and analysed the reasons why the concentratorhad unscheduled stoppages and variable feed rate. Then they generated more than130 viable solutions and began implementing them. The result during the '05 financial year was increased production of manganesefrom Gemco that translated into a US$10.6 million increase in earnings. At our Tintaya copper operation in Peru, a team of our people looked at how theycould increase the amount of ore being processed through the oxide plant. Theyidentified several causes of stoppages and put in place solutions as simple asprotecting one of the conveyors from rain. The increase in the amount of orecrushed through the measures they implemented resulted in an increase toearnings of US$3.4 million. Projects like this are being conducted across all our operations. They rely onthe energy, enthusiasm and determination of our people to constantly improve ouroperations and find better ways of doing things at the grass roots level. Thesesorts of improvements can't be made by the company's executives or corporatefunctions; they depend on all our people working together to come up withcreative solutions to challenging problems. And they result in increasedprofits for the company and greater returns to you, the shareholders. The second reason for the increase in volumes of our commodities during the yearis the expansion in capacity that we are creating through our growth projects. Since June 2001, we completed 24 major projects, bringing on new capacity acrossa range of commodities and ensuring we had additional product available tomaintain our share of growing demand. Demand continues to be strong and we expect demand growth to continue as Chinacontinues its large-scale urbanisation and countries like India follow the sametrend of a burgeoning middle-class. During the '05 financial year we approved another four projects - two inPetroleum and one each in copper and iron ore - and we have just today announceda further expansion of our Western Australian iron ore operations. Our current project pipeline includes 26 projects in either development orfeasibility and represents US$11.9 billion of capital expenditure. And thereare many more projects that sit behind this pipeline, in earlier stages ofassessment, that, ultimately, we can bring on line if we believe market demandwarrants those investments. In addition, we expect our exploration andtechnology activities to continue to identify opportunities for us. I would like to emphasise the quality of each of these projects. Despite thesheer quantity of projects being assessed and developed, we remain absolutelyfocused on our strategy of developing tier one, or long-life, low-cost assets.With our solid track record of project delivery, many of our projects will beamongst the best in the industry, whether from a capital or operating costperspective. Also central to our strategy is our focus on financial and capital disciplineand we will not compromise this to rush through any of our projects. We remainclearly focused in this area at a time when there is not only increased pressureto deliver growth, but also significantly increasing pressure on costs andschedules brought about by the tight market situation. Increased costs will impact some of our projects - that is a fact of life in ourindustry at the moment - but we are managing these cost pressures as best we canand our rigorous project approval processes will stand us in good stead. Again, we are fortunate to have excellent teams of people who have extensiveexperience in project development, working around the world as they complete oneproject and move on to the next. As you know, we completed the acquisition of WMC Resources during the year. WMC's assets have assisted to position BHP Billiton as one of the industryleaders in nickel through the addition of their extensive Western Australianassets to our existing Queensland and Colombian nickel operations and our growthprojects in Western Australia. We have a positive view of the nickel outlookand are excited about being able to develop these assets further. Likewise, through the acquisition of Olympic Dam in South Australia, we havebeen able to augment our copper position and gain prime opportunities forexpansion in future years. We have effectively completed the WMC integration process, with those assets nowpart of our existing Customer Sector Groups and many of the WMC people now partof the BHP Billiton family. I'd like to take this opportunity to thank all our people at BHP Billiton. Itis a very exciting but demanding time in our industry. To achieve the sort ofresults we are discussing here today requires enormous effort by all of ourpeople to ensure we do make the most of the opportunities presented to us. I'll now hand back to Don. Don Argus, Chairman, BHP Billiton Thanks Chip. This year we again invited shareholders to send in questions ahead of themeeting to give us some guidance on the issues you would like to see covered andI want to thank those shareholders who responded. I will now address the issues that were raised most frequently. Turning first to dividends. We have received queries around why our finaldividend for the year of fourteen and a half cents wasn't higher, given thestrong financial results and record profit. Dividends are one of the two components of your returns. The other component isincreases in the share price. We have always said, and continue to hold the view, that our top priority forcash flow is to finance value-driven growth opportunities. It is the company'sinvestment in the growth projects that Chip and I have discussed today, that isdriving both the Group's market capitalisation and the increasing dividendpay-outs. As long as we continue to see opportunities for adding value, we will reinvestin the business. Our next priority is to maintain our capital structure in line with our A creditrating. Next, we commit to returning cash to shareholders, either through ourprogressive dividend policy or by other means - and you are aware of the 1.78billion dollar share buy-back we successfully completed last year. In the 2005 financial year, BHP Billiton returned nearly 1.7 billion dollars individends alone. The final dividend for the year of fourteen and a half centswas 53 per cent higher than the final dividend declared the year before. And itrepresented the seventh consecutive increase in our dividend payments. Your Board firmly believes that our progressive dividend policy is the rightone. You can be assured that the Board will continue to carefully assess thecompany's position and, if we believe we cannot better invest our cash invalue-driven growth, we will consider how best to return cash to shareholders. The next subject that was raised by a number of shareholders is uranium. BHPBilliton acquired WMC Resources in August 2005. That gives BHP Billiton accessto around one third of the world's economically recoverable uranium resourcesand we currently supply eight per cent of the world market for uranium. Nuclear power capacity world-wide is increasing steadily with over 30 reactorsunder construction in eleven countries. Most reactors on order or planned arein the Asian region. In addition, significant capacity is being created byupgrading the performance of existing plants. It is not unreasonable to expect the operating lives of upgraded plants toextend out from 40 years to 60 years. We also expect that the gap between primary supply and demand for uranium incommercial power generation, is likely to persist for many years. As you will have seen in media reports, there is increasing recognition of therole that uranium can play in helping to meet the world's energy demands, whilealso addressing the issue of climate change. We recognise that in entering the uranium business, we will be dealing with acommodity about which the community has some specific concerns. Our willingnessto participate in this sector is based on the following three facts: First, the nuclear power industry is one of the most highly regulated industriesin the world with stringent licensing requirements for the construction,operation and decommissioning of all facilities involved in the nuclear fuelcycle. Secondly, Australian mines can only supply uranium to those States that havesigned the Treaty for non-proliferation of nuclear weapons and where safeguardstandards are ratified in accordance with the Treaty. And thirdly, the Australian Government has extended the Treaty requirementsthrough bi-lateral agreements with customer countries that reinforce thesafeguard requirements of the International Atomic Energy Agency. Issues that emerged from the questions submitted, are the handling and storageof waste, and the potential for radio-active material to be diverted frompeaceful purposes to weapons or terrorist programs. As I have mentioned, thesafeguards on the use of uranium are robust and give us comfort that thepotential for inappropriate use is minimal. As a miner of uranium we do not have direct responsibility for the storage ofwaste, however, as a responsible member of the industry, we are of courseconcerned with the handling processes from an industry perspective. We will work with others involved in the life cycle of the nuclear powerindustry to optimise the effectiveness of management procedures and safeguards. The third issue raised by a significant number of shareholders was executiveremuneration. As I did last year, I would like to take you through how BHPBilliton remunerates its executives by addressing the key questions we thinkshareholders should be asking. Some of you will have seen these questions last year. They are: • Is the remuneration package made up of fixed and at-risk components? • What is the split between the fixed and at-risk components? • How is the fixed amount set? • What performance conditions attach to the at-risk component? • Are the performance conditions robust and will they create long-termvalue? • How has the company performed against the performance conditions? andfinally • What payments would be made when a contract comes to an end? I will use the CEO's package as an example. In 2005 Chip earned 4.6 million dollars. This was made up of fixed and at-riskcomponents. 44 percent was fixed - i.e. it was paid without reference to any performanceconditions. 56 percent was at-risk. In other words, over half of Chip's pay was assessedand paid as a result of how the company performed. The fixed amount is set by reference to the market - that is - what do we haveto pay to attract and retain a highly talented CEO. From time to time the Remuneration Committee checks that our pay level is inaccordance with the prevailing market rate. The Committee did this again lastyear. It is also typical each year for pay for all workers to be reviewed, againstcost of living changes. The increase in the cost of living varies across the regions of the world wherewe operate, and for last year it ranged from 2 to 7 per cent. The increase inChip's base salary, which reflected the cost of living changes in the regionapplicable to him, was 5 per cent. The at risk remuneration is different and will vary depending on the performanceof the group So how is the at risk amount determined? The 56 per cent that was paid forperformance was assessed by reference to short and long term incentives. The short term performance conditions included our performance on health, safetyand the environment; how much shareholder value was created, and how much netpresent value was added. The Board signs off on these performance conditions at the beginning of everyyear, and then on how the executives have performed at the end of the year. The next questions is: will the conditions create long-term value? This can be best illustrated by looking at the long term incentives. This year we are asking you to approve the grant of 600,000 performance sharesto Chip. The performance conditions run over 5 years, so for Chip to receiveall those shares in 2010 the total shareholder return (that is the total of theamount by which the share price has increased and the dividends that have beenpaid) must exceed the TSR of the companies in our comparator group by 5.5% eachyear. You can see from this slide what would have to happen to your share price anddividends over the next 5 years for Chip to receive those shares. The cumulative amount equates to exceeding the average TSR of the comparatorgroup over a period of 5 years by 30 per cent. Keep in mind that the Board has limited the total number of Performance Sharesthat can be granted to a value that is no more than two times the executive'sannual base salary. You can see how the company has been performing against these conditions fromthese slides. First, you can see how we have performed against our comparator group and themarket over the last year And second, how we have performed over the last 5 years. It is reassuring that a majority of our shareholders think that we have theright mix of principles to attract, retain and motivate quality executivesaround the world. The final question to ask is what arrangements are in place to minimise theamount that is paid when a contract comes to an end. Our policy, is to make sure we can terminate contracts on 12 months notice andthat we don't have to pay more than 12 months' salary. While we still have one or two old executive contracts that require us to paymore than 12 months' salary, Chip's contract can be terminated by giving 12months' notice which would require a payment of one year's base salary, plus theamount paid instead of superannuation, which is 630,000 dollars. The shares Chip would be entitled to retain under the incentive plans if hiscontract comes to an end, are detailed in the Annual Report. Ladies and gentlemen, the issues I have covered were those raised mostfrequently by shareholders ahead 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 2005 financialyear are an indication of the strength of the BHP Billiton Group. BHP Billiton is in strong financial shape. We have strong cash flows andmargins, professional and capable leadership, a committed workforce and animpressive pipeline of growth projects. All of us are focussed on ensuring thatshareholders, our employees and the community share in our success. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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