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19 April 2013 |
Anglo American plc Annual General Meeting − Address to shareholders Anglo American plc held its Annual General Meeting for shareholders in London today. Sir John Parker, Chairman, and Mark Cutifani, Chief Executive, made the following remarks: Sir John Parker, Chairman, Anglo American plc: |
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Good afternoon, ladies and gentlemen. Many of you, I know, have travelled a long way. May I extend a warm welcome to all of you to the Anglo American plc AGM.
As you all know, 2012 was a very difficult year for the mining industry. Against a backdrop of a marked economic slowdown in China, a troubled euro zone and only a relatively weak and patchy recovery in the United States, the industry faced falling prices, while profitability was further eroded by above-inflation cost increases in many countries.
As a consequence - and in line with a number of our peers - Anglo American experienced a sharp decline in profitability. We reported an underlying operating profit of $6.2 billion, 44 per cent down on the previous year; our underlying EBITDA decreased by 35 per cent to $8.7 billion; while underlying earnings were 54 per cent lower at $2.8 billion.
Our financial and operating performance further suffered as we experienced setbacks in key areas of our business. In South Africa, we encountered lengthy illegal industrial action at our Platinum and Kumba Iron Ore operations - with Anglo American Platinum recording a loss for the year. In the first six months, we also encountered operational setbacks in our Chilean copper business, though I am pleased to say that output there is now on a recovery track. At our flagship Minas-Rio iron ore project in Brazil, a diversity of problems led to a revised delivery date and capital-cost increases. This led us to review the carrying value of this asset, writing it down by $4 billion.
In spite of all these challenges affecting cash flow, the Board was able to recommend a final dividend of 53 cents per share, giving a rebased total dividend for the year of 85 cents, a 15 per cent increase, reflecting our confidence in the underlying business going forward. This increase completes the rebuilding of our dividend since its suspension in 2009 to a new base level competitive with our diversified peer group.
Continuing on a positive note, I should also like to add that the three major new mining operations we have commissioned - Kolomela iron ore in South Africa, Barro Alto nickel in Brazil and our copper expansion at Los Bronces in Chile - are contributing strongly to cash flow.
In 2012, our new mining operations and expansions generated $1.2 billion, almost 20 per cent of total operating profit.
Complementing the underlying cash flows from the business, our capital demands have also been underpinned by the contributions from our successful disposal programme. By year-end, our divestment programme of non-core businesses, as announced in October 2009, had generated proceeds of $4 billion on a debt- and cash-free basis.
Anglo American's objective is to maintain a strong investment-grade rating - which demands rigorous capital discipline. We recognise only too well that our major capital project, Minas-Rio, has been a much bigger challenge than any of us could have anticipated and that over the next two years we will bear a heavier capital expenditure burden as we seek to complete its development, after which we expect capital expenditure to be moderated.
Given the increased challenges involved in developing large and complex greenfield sites, the Board will apply a highly disciplined approach to the allocation of capital - with smaller, lower-risk brownfield expansion projects more likely to find favour in the short term. We will also explore the merits of seeking suitable partners in large greenfield projects.
We are making real progress, however, towards first iron ore shipment from Minas-Rio by the end of 2014. We have secured the vast majority of the permits needed; the focus now is on working towards converting our installation licences into operating licences. Earthworks at the beneficiation plant are almost complete; around three-quarters of the civil works have been done; and almost half of the 525-kilometre pipeline has been laid. Minas-Rio is a world-class iron ore project of rare magnitude and quality, in an established mining jurisdiction, representing one of the world's largest undeveloped resources of iron ore.
I would also like to mention the successful outcome of the dispute with the Chilean state copper producer, Codelco. We were able to retain majority control of Anglo American Sur and to establish a new relationship that positions us to build a very strong future for our business in Chile. We were also able to generate $2.3 billion of incremental proceeds for our shareholders compared to the original option-price formulae.
A further key development during the year was the completion of our acquisition from the Oppenheimer family of its 40% shareholding in De Beers, which gives our shareholders greater exposure to the world's No. 1 diamond company. De Beers is well positioned to capitalise on the positive fundamentals in diamonds, with the supply of gem diamonds anticipated to fall well short of demand over the long term.
In these volatile times especially, boards have a heightened responsibility to ensure that management delivers enduring value for shareholders. That is why, following almost a year of studying various options and social plans, we announced a major restructuring of our Platinum business. We aim to return it to a sustainable profit and a more secure future for the 45,000 employees who would remain in that business. We continue to engage positively with the South African government on the finalisation of our recovery plans.
Turning to safety, this is a constant challenge, and none of us can afford to let up our vigilance for an instant. Last year, the number of people who lost their lives on company business decreased to 13, while our lost-time injury frequency rate also resumed a downward trend.
I would like to take a moment now to pay tribute to Cynthia Carroll, who earlier this month stepped down as chief executive and who leaves Anglo American at the end of this meeting. Overall, during her six-year watch, the annual number of people who died on the company's business, on a like-for-like basis, was reduced by at least half. This step change in performance is great testimony to Cynthia's safety leadership, as well as the commitment of all of her senior management team. Their tireless endeavours in leading the safety agenda have brought about real and lasting change in the way we approach our drive for zero harm.
Cynthia's leadership has had a transformational impact on Anglo American. She developed a clear strategy, based on an attractive range of core commodities, and created a strong and unified culture and a streamlined organisation. Cynthia lived out Anglo American's values to the full and her legacy includes, among many other things, a step-change improvement in safety, sustainability and the quality of our dialogue with governments, communities and other stakeholders around the world.
As a Board, we not only thank her but wish her all success and good wishes in the years ahead.
At this juncture, I would also like set some of the other changes to the Board in the context of the heightened responsibility boards now have. Over the past few years, governance pressures on listed companies have been growing in intensity. Both institutional and individual shareholders have sought to hold under-performing managements and boards to account. And that is right.
In the three-plus years I have been chairman of your company, therefore, I have sought to refresh and strengthen the Board by bringing in members with a range of skill-sets and experience that can add value to our business and maintain capital discipline. It is in that light that we appointed Anne Stevens in May 2012. Anne is an engineer with extensive industrial experience, including operating in a range of South American countries in which we are present.
I also wish to take this opportunity to thank Dr Mamphela Ramphele, who stepped down in July, for the wealth of experience and insight she brought to the Board's affairs. Mamphela, who was a key figure in South Africa's struggle for democracy, later had a very distinguished career, including serving as vice-chancellor of the University of Cape Town and as a managing director of the World Bank.
Peter Woicke is also standing down from the Board. He has been a director since 2006 and chairman of the Safety and Sustainable (S&SD) Committee for the past three years. Peter has brought a wealth of experience and knowledge about development in emerging economies to our proceedings and has ensured that Anglo American remains at the forefront of the major sustainability issues facing our industry.
We are very fortunate to have someone of Jack Thompson's extensive mining experience and knowledge of safety to take over as chairman of the Committee and to build on Peter Woicke's excellent work.
The Board is also proposing the appointment of Dr Byron Grote as a non-executive director at today's meeting. Byron Grote has more than three decades of broad-based business experience in the natural-resources sector, including mining and, more latterly, 10 years as chief financial officer of BP. Dr Grote will also join the Audit Committee and, in due course, take over the chairmanship from David Challen, who has rendered outstanding service.
I am particularly glad that David has agreed, given the extensive changes to Board membership since late 2009, to serve for at least another year as the senior independent non-executive director.
And now to Mark Cutifani.
The Board conducted a global search, which I led, to identify the best possible candidate for the role of chief executive. We had a very clear list of criteria of what we wanted to see in a CEO for the next decade, and Mark was the Board's unanimous choice to succeed Cynthia.
Mark, who took up his post on 3 April, was the CEO of AngloGold Ashanti, based in South Africa, where he led the successful restructuring and development of its business. He is an experienced listed-company chief executive who has a focus on creating value. Mark is a seasoned miner, with 36 years' experience in the industry and broad experience of mining operations and projects across a wide range of commodities and geographies, including South Africa and the Americas, as well as his native Australia. He is a highly respected leader in the global mining industry, with values - and I include safety and sustainability foremost among these - strongly aligned to those of Anglo American.
Finally, turning to the outlook for mining commodities and Anglo American in particular.
There are now clear signs of an upturn in US housing, which should reinforce a broader economic recovery helped by ultra-loose monetary policy. In China, the authorities have also eased policy to stimulate faster growth. But the country's newly installed leadership is mindful of the need to rebalance the economy, which will restrain growth over the next few years. In Europe and Japan, activity has been weak, but there are signs of improvement and changes in recent policy should boost growth in 2013.
In the medium term, we see continuing robust demand for industrial commodities as emerging economies continue to industrialise and advanced economies invest in upgrading their infrastructure.
Mark Cutifani, Chief Executive, Anglo American plc:
Sir John Parker, members of the Board, distinguished guests, shareholders, members of the Executive Committee, colleagues, ladies and gentlemen.
As the incoming Chief Executive in his first month, it is a privilege to be given the opportunity to speak to our shareholders at an Annual General Meeting. In making my introductory remarks I would also like to acknowledge Cynthia Carroll's contribution to the organisation and to wish her well for the future. We share a passion for safety and I have made the point from day one that my focus on people and the provision of a safe and healthy workplace is a pre-requisite for doing business in, and with, Anglo American.
It is a great honour to be appointed to the role of Chief Executive Officer of Anglo American. Our company has a storied history, beginning with its proud South African origins and extending to the international stage as it has established itself as a major l diversified mining group. However, while many things have been achieved, we cannot continue to do business as usual. Our share price is languishing compared to our peers and we are not being rewarded for the potential we have embedded in the asset portfolio.
In that context, let me say that I recognise that South Africa remains critical to our shareholder-value proposition. Likewise, we remain important to South Africa's longer term development prospects. I am confident that we can operate more effectively in all of our key jurisdictions, recognising that our local communities and our host nations are our most important stakeholders. We must be driven by our desire to deliver value to our shareholders while being guided by our understanding of the need to deliver long term sustainable social outcomes.
On a broader front, in my previous roles with AngloGold Ashanti, Inco and Vale, WMC and Rio Tinto, I have had responsibilities in almost every one of Anglo American's development and operational jurisdictions. Furthermore, that experience across more than 20 commodities has extended from technical and commercial roles through to some unique experiences in social developments in both developed and developing countries across the globe.
In my 36 years in this industry, I believe I can point to a track record of financial discipline and business delivery, alongside a commitment to progressive social change that is consistent with the Anglo American values around caring for people and for the communities in which we operate.
In making my first specific remarks around my personal business philosophy I will start with leadership and people.
As Henry Ford once said: "You can take my factories, burn up my buildings, but give me my people and I'll build the business right back again."
People are the business. Anything that we accomplish with our resources, the assets we have built and the capital we invest is through the design and actions of our people. Leadership must be focused on people, providing the vision and the drive to deliver on our potential.
A team that has the vision to lead the industry in the delivery of sustainable value must do more than merely talk about the word 'value'. We must create the conditions and live the values to allow people to trust each other, to work as a team and to hold each other accountable for delivery on our commitments to one another. This is how we create an exceptional business. And this is how we will create relationships with our host communities in which people can believe.
Leadership is about delivering on our potential.
There has been considerable media commentary on strategy in our industry recently, with new chief executives promising not to make acquisitions, not to develop new projects and to return cash to shareholders in ever increasing amounts. I will not make promises where I am not sure we can consistently deliver value or where we do not have an execution strategy. In my view the difficult issues we have seen in the industry over the last five years relate to a lack of capital discipline, a lack of focus on returns and incapacity to translate good intent into business results. In Anglo American, we take full responsibility for addressing that issue. We cannot over-simplify the issues by attributing poor performance to one or two philosophical mantras. We will build our strategy guided by the need to spend within our means and to deliver attractive capital returns within a risk profile that we are comfortable allows us to deliver on our promises. Delivery on commitments must be supported by the establishment of an execution discipline and structures that leave as little as possible to chance or factors outside of our control.
As an industry, we have lost sight of what the obvious issues are. So, we will look at a new project development, a potential acquisition or any other transaction on the basis that:
· It is the best place to commit that capital compared to all other options;
· We have enough information to be confident we have got the numbers right and that we have fully appraised the risks and the opportunities; and
· We have the team that can execute in line with the plan.
While it should go without saying, we will again reinforce the notion that all investments must more than compete with the natural alternative; that is, to return cash to shareholders. That simply demands that our individual and portfolio focus must be on delivering returns well in excess of our weighted average cost of capital.
So, in collaboration with the executive team and the Board, over the next three months we are conducting a detailed strategic review. It will cover such fundamental aspects as:
· A compelling confirmation of our commitment to people and the provision of a safe, healthy and productive workplace.
· As a major diversified company, we need a more focused articulation of the value proposition that will guide our strategic positioning.
· An operating and project delivery model that takes inspiration from beyond the mining industry, to support the implementation of the plans and disciplines necessary to improve our ability to execute our strategy. In doing so we will also establish the underlying processes necessary to improve our competitive operating position, to improve margins and to increase capital returns.
· The basis of a capital-management regime, including "constructive competition" in terms of capital allocation in order to drive a strong value-creating culture. This is the issue that is crucial: that we ensure that money goes to the right place. We will also be considering a different capital model that takes more cognisance of individual capital risk, more like the approach that the petroleum industry takes towards the syndication of capital. That is, we will be more open to joint ventures where we partner with others to tap broader operating or other experiences along with lowering our incremental capital risk on specific projects.
· A renewed focus on technical innovation, where the application of "intellectual capital" drives the creation of longer term competitive advantage.
· A consistent approach, wherever we work, towards strengthening our Sustainability Framework. This local-focus approach will help us recalibrate our social development programs so that our investments more effectively impact our most important development partners. This approach will be developed consistent with, and within, broader government development structures - as it is not our intention to work outside these structures, but to better complement these frameworks with our local focus and more effective community and engagement processes.
· Making sure we have the right people in the right roles doing the right work and that everyone understands what they are individually accountable to deliver. This is a cornerstone in delivering continuous improvement and shareholder value.
· An understanding that our shareholders provide us with capital and support in the expectation we will take appropriate account of their views to deliver both exceptional and sustainable long term value.
As a point of principle, I believe that if there are no investment opportunities that deliver above our risk/return hurdles, we should return cash to our shareholders.
To deliver on our potential we will have to put in place new processes that reach outside the mining industry for their inspiration and application. To be brutally frank, our industry lags the petroleum, manufacturing and aviation sectors and other more progressive and innovative heavy industry players in terms of operating practices - there is no reason why our industry should not use the best from all of these "restless innovators".
In the last 10 years I have worked with a select group of industry colleagues to develop and apply the mining industry's most comprehensive fully integrated operating model - it takes a good part of its design from a wide range of leading practices from outside the relatively narrow confines of the mining industry. The consistent evidence is that this model delivers, over a five year period, a material underlying improvement in the productivity of our operating processes - without any significant incremental capital investment. That is the challenge for us as a management team. The key measures for such improvement must be productivity, reduction of waste reflecting unit cost improvements and the delivery of improving capital returns.
We must become leaders in the industry in innovation.
When we integrate this type of approach with an experienced technical knowledge of how to extract value from our resources I have no doubt that we can lead the industry in value creation.
We will apply the same disciplined approach to all of our major investments and transactions.
In terms of our people, we must work together as a team to ensure we deliver on our collective commitments. Our commitment to work together and to hold each other accountable to deliver on our potential must be relentless.
Finally, as the leader of your Executive team, I commit to strong, honest, responsible and accountable leadership.
Strong leadership is clear, direct and focused on what has to be delivered.
Honest and responsible leadership takes the time to work with partners to understand the inherent complexities of our world to craft technical, commercial and, above all, socially sustainable outcomes in our broader global context.
Accountable leadership defines the understanding in the leadership team that we are ultimately accountable to those that put their trust in us to deliver on the potential in the assets we have at our disposal.
I have absolutely no doubt that Anglo American has the people and the physical and financial resources to deliver on its undoubted potential. I look forward to leading the Group and the team in striving to exceed your expectations.
We thank you for your support.
Notes to editors:
Anglo American is one of the world's largest mining companies, is headquartered in the UK and listed on the London and Johannesburg stock exchanges. Anglo American's portfolio of mining businesses spans bulk commodities - iron ore and manganese, metallurgical coal and thermal coal; base metals - copper and nickel; and precious metals and minerals - in which it is a global leader in both platinum and diamonds. Anglo American is committed to the highest standards of safety and responsibility across all its businesses and geographies and to making a sustainable difference in the development of the communities around its operations. The company's mining operations, extensive pipeline of growth projects and exploration activities span southern Africa, South America, Australia, North America, Asia and Europe.
www.angloamerican.com
