TIDMAAL
RNS Number : 1800D
Anglo American PLC
24 April 2017
24 April 2017
Anglo American plc
Annual General Meeting - Address to shareholders
Anglo American plc held its Annual General Meeting for
shareholders in London today. The following remarks were made by
the Chairman and the Chief Executive.
Sir John Parker, Chairman of Anglo American plc, made the
following remarks:
2016 was a year of continuing slow global economic recovery, and
even the remarkable acceleration in prices in the second half for
bulk commodities such as metallurgical coal and, to a lesser
extent, iron ore and thermal coal, was still not quite enough for
Anglo American to be able to record a higher average price for its
own basket of products compared to 2015. That makes our financial
performance in 2016 all the more creditworthy.
Looking to 2017... On the demand side, the fortunes of the
mining industry will inevitably continue to be influenced by
developments in China, where the authorities have recently reduced
the country's growth target for 2017 to 6.5% as the country seeks
to balance its economy through a mixture of stimulus and managed
slowdown. That said, China's admirable efforts to improve air
quality may boost demand for some of the higher-quality and
cleaner-burning iron ore and coking coal that we are well
positioned to supply for steel making. Widespread expectations of
continuing slow growth in many regions of the world outside of
Asia, accompanied by uncertainty over how much of the reform
programme, including its ambitious infrastructure plans, of the new
and protectionist-leaning US administration can actually be
achieved, may be a drag anchor on the global economy for some time
to come.
Turning to Anglo American's performance last year, I must, as
always, start with safety. Although we had a most encouraging 24%
reduction in recordable injury rates compared with 2015, the number
of people who lost their lives at our operations increased from six
to 11. This was way out of line with the declining trend of the
past few years. It was all the more surprising, given the increased
focus on safety across the Group, including our emphasis on
critical controls in high-safety-risk areas. As a Board, we regard
each loss of life with great sadness, and it is particularly
distressing that several of these fatal incidents were eminently
preventable, given that they resulted from front-line operational
practice being out of alignment with our safety policies. Across
the business, we have shown that we can operate for long periods
injury-free, and I have asked Jack Thompson, who chairs the Board's
Sustainability Committee, to engage even more closely with Mark and
his executive team to address the safety challenge and give added
impetus to our drive towards zero harm.
It is appropriate here to mention the work of the Sustainability
Committee. Jack - who has around four decades of mining experience,
across a range of disciplines, commodities and geographies -
ensures that the Committee is involved in all investigations into
each and every fatal incident, as well as any major environmental
event, and that it assists management in assessing operational
risks Group-wide. This includes, for example, heightened attention
to our 90 tailings-dam storage facilities and more than 200
water-containment structures. Although we have confidence in their
integrity, and our monitoring of them goes beyond legal compliance,
we cannot be complacent; therefore, we have further increased our
degree of surveillance, inspection monitoring and risk-assurance
assessment, and we are rolling out a new mineral-residue technical
standard across all relevant operations.
Overall, our environmental performance has improved
considerably. It is clear that better work planning and execution,
along with a greater focus on assessing risk, are bearing fruit.
The number of environmental incidents in our Group is now 85% fewer
than in 2013.
I want now to turn to our strategy. As you know, there has been
some commentary in certain quarters that Anglo American has
deviated from the course of action we set out early last year, when
we announced a plan to address our balance sheet position by
potentially disposing of a material portion of our asset base and
focusing on our strongest market positions in diamonds, PGMs and
copper. In response to that commentary, I would ask you to cast
your minds back to the circumstances of just over a year ago, when
the mining industry and commodity prices were on the floor. At that
time, in the aftermath of $6.4 billion having been wiped off our
own underlying EBITDA in the previous two years in aggregate, and
with scant prospect of an early uplift in prices, Anglo American's
clear imperative was to take bold action to bring down our net debt
quickly to a manageable level.
So we accelerated sale processes, already under way in some
cases, and broadened the range of assets so as to create
competitive tension across those processes, with a clear commitment
not to accept undervalued prices, particularly for quality assets
that we would not normally have offered for sale. As a consequence
of this value-driven approach, we had a very successful sale of our
niobium and phosphates business in Brazil for $1.5 billion, as well
as the sale of a number of other smaller assets, resulting in total
sale proceeds for the year of $1.8 billion.
Given the subsequent change in the pricing environment later in
2016 and the improvement in operating performance, the overriding
imperative to sell assets to reduce debt was removed. In that
context, and given the high quality of the nickel and Moranbah and
Grosvenor metallurgical coal assets, we resolved that the right
value outcome was to retain them. I am pleased to say that we
received resounding support from our shareholders for these
decisions - to react quickly to address the balance sheet both
operationally and strategically and then adapt as circumstances
changed.
From my perspective as your Chairman, while there was a clear
imperative to reduce net debt during 2016, the underlying asset
strategy holds true. Going forward, our commitment remains to a
portfolio focused on the highest quality assets where we have the
ability to deliver attractive margins and returns and can do so in
the context of the right corporate and capital structure.
Therefore, today we have considerably more optionality in respect
of the assets in our portfolio which we will, however, continue to
actively manage. We remain open, for example, to a value-based
transaction regarding part of our South African portfolio, but
given the operational improvements we have made and the consequent
financial contribution these assets are making, there is again no
urgent imperative to do so.
Overall the asset disposals, coupled with cost-reduction
productivity improvements and an uplift in prices for the second
half of 2016, allowed us to reduce debt to below our target of $10
billion - in fact to $8.5 billion - resulting in an EBITDA to net
debt ratio of 1.4 times.
For the year as a whole, we delivered EBITDA of $6.1 billion,
and underlying earnings of $2.2 billion. Our profit attributable to
equity shareholders was $1.6 billion. We have reduced the number of
operating assets by more than one third over the last four years,
with further progress in 2017 as we sold our interests in Union
platinum mine and our recent announcement of the sale of our
Eskom-tied domestic thermal coal operations - all of which reflects
a very considerable upgrade in the quality of the portfolio as a
whole. Continued capital discipline saw capital expenditure decline
from $4 billion to $2.5 billion, and no new major projects were
approved. All of this was reflected in a remarkable resurgence in
our share price, the best performance on the FTSE 100 in 2016.
2016 was therefore a year in which the benefits of our bold and
thoroughgoing plan, set out by Mark in 2013, to turn the business
around, started to come through and make a real difference.
Intrinsically linked to our story of balance sheet repair and
strengthening, and the generation of increasing free cash flows, is
our turnaround at an operational level. Our performance was
bolstered by an across-the-business improvement in productivity of
18% as we progressively rolled out our Operating Model and sold a
number of less-productive assets.
Our Group is now producing more product from a third fewer
assets than we had at the start of 2013 - while our increased focus
on marketing is yielding improvements in margins and received
prices. As a result, we have seen costs come down by some 30% over
the past four years, with copper-equivalent unit costs declining by
9% in dollar terms in 2016 alone.
And we believe we can unlock further value; Mark and his team
have targeted to deliver an additional $1 billion of cash and
volume improvements during 2017.
On behalf of our Board, I want to record our deep appreciation
to management for their commitment through the industry crisis and
to Mark in particular for his outstanding leadership.
In summary, our aim in future is to have a more robust balance
sheet and increase the resilience of each of our business streams
to the price volatility that characterises our industry. We are,
therefore aiming to enhance the robustness of our balance sheet
through continuing to plan for even lower debt levels, with our net
debt to EBITDA ratio staying within a 1-to-1.4 times range:
We are planning to reinstate the dividend by the year-end on a
payout-ratio-based policy which we will define at the time;
We are committed to an innovative approach, including through
technology, to improve productivity and reduce our environmental
footprint through our FutureSmart mining(TM) programme that you
will hear Mark talk about; and
We are examining expansion options to provide further growth,
particularly in our Copper business; any future greenfield projects
are likely to be undertaken in partnership / syndication with
others in order to de-risk them.
I want to turn now to a topic that is at the front of our minds
in business today... That of trust. It is no exaggeration to say
that trust is in crisis around the world. The 2017 Edelman Trust
Barometer, published earlier this year, reveals that the general
population's trust in all four key institutions - business,
government, NGOs, and the media - has declined broadly.
To help rebuild trust and restore faith in the system, companies
and institutions must step outside of their traditional roles and
work towards a new, more integrated operating model that puts
people - and addressing their fears - at the centre of everything
they do.
At Anglo American, each one of us faces challenges on a daily
basis as we work to rebuild the trust that is integral to our
deep-seated reputation for doing the right thing, including acting
with integrity and displaying care and respect for the rights and
livelihoods of our colleagues, communities and the natural
environments in which we work.
To assist us in this, we have recently revised, and rolled out
to all employees in the Group, our Code of Conduct - an initiative
in which the Board was directly involved. Intended to be a single
point of reference, the Code makes very clear what standards of
behaviour the company expects. It has at its core our shared
values, which describe how we must behave consistently to continue
to earn the trust that gives us our social licence to operate.
Those shared values are also integral to the way in which we
continue to work in partnership and consultation with all of our
stakeholders, and our shareholders, to help address the causes and
impacts of climate change. As part of this outreach, we have been
consulting with the 'Aiming for A' coalition, which was established
in 2012 by a group of investors, including some of our largest
shareholders, to enhance extractive companies' reporting commitment
to address climate change, including how they manage its impacts on
their business. In 2015, we received a 'B' rating, and we are in
the process of making some changes to ensure we reach an 'A' rating
as soon as possible.
Turning to the subject of executive remuneration... Our
Remuneration Committee, chaired by senior independent director Sir
Philip Hampton, and the Board, have been determined to address
certain investors' concerns about the potential windfall gains for
executive directors arising from the volatility of Anglo American's
share price and the mining industry more generally. As you know, at
last year's AGM, we did not receive the level of support we would
have wished from shareholders who voted on our remuneration report.
Although there is no perfect remuneration system, the Board
believes that at Anglo American there has been a relatively good
correlation between profitability and levels of variable
remuneration - and that our remuneration system is fair,
performance-based and comparable with our peer group. Following
further consultation by Sir Philip with our shareholders, we are
presenting a revised remuneration policy at this meeting, which we
hope you will support.
During 2016, sadly, non-executive directors Ray O'Rourke and
Judy Dlamini stepped down from the Board. Ray joined the Board in
December 2009 and left to concentrate on his business commitments
as chairman and chief executive of Laing O'Rourke. His wise counsel
and experience of complex projects, safety and innovation were of
great value to us. Judy joined us in January 2014 and left to
devote more time to her business commitments in South Africa; her
contributions to the Board and its committees, drawing on her
experiences across a range of sectors, including mining, were
greatly appreciated by her colleagues.
Subject to shareholder approval today, I am pleased to announce
that Nolitha Fakude will join the Board as a non-executive director
at the conclusion of this meeting. Nolitha has 25 years' experience
across a diverse range of industry sectors, including oil and gas,
petrochemicals, financial services and retail. She was until
recently an executive board member of South Africa-based
petro-chemicals company, Sasol, where she has led the strategy and
sustainability portfolio, which encompasses strategy, risk, health,
safety and environment, as well as human resources.
There have also been changes on the executive directors' side
since we last met 12 months ago. René Médori has announced his
decision to retire, after serving with distinction for nearly 12
years as finance director. René has rendered great professional
service to the Group, and we wish him all success in the
future.
Following an exhaustive international search, we have appointed
Stephen Pearce as our new finance director. Stephen, who has come
to us from the Australian mining company, Fortescue Metals, joined
as at the end of January this year, and will succeed René as
finance director at the end of today's AGM - again, subject to your
vote of approval.
Finally, after what will have been around eight years as your
chairman, I have requested that the Board identify my successor
during the course of 2017. I will ultimately be leaving an Anglo
American that has emerged from the deep commodities downturn of the
last three years as a much stronger organisation, with a more
resilient business, a strengthened balance sheet, an excellent
Board and a world-class management team, led by Mark Cutifani. I am
honoured to have served this great company as chairman for so long,
and I want to thank you, the shareholders, for your interest in our
company and for your support. I also wish Sir Philip Hampton - who
is leading the search for a new chairman - every success with the
Board in this endeavour.
I will now invite your chief executive, Mark Cutifani, to
address the meeting.
Mark Cutifani, Chief Executive of Anglo American plc, made the
following remarks.
Thank you, Chairman. Ladies and gentleman, good afternoon and
it's always a great privilege to be here. This year, of course, it
is a particular privilege to be your Chief Executive, given that we
will be marking Anglo American's 100th birthday in September.
So, let me start with the results and then give you an idea of
how we are thinking about the future.
You may have noticed on our results materials and our Annual
Report, we are using the words, "Delivering Change" and "Building
Resilience" to make a very clear statement of intent. There can be
no doubt there is change...this is a very different business and
our focus is to continue to improve the business to ensure we can
deliver cash flow under any scenario the market throws at us. To
me, that is the definition of a resilient business.
In 2016, we delivered on our key commitments. Given where we
were one year ago there are two very important numbers I would like
to highlight. We delivered free cash flow of $2.6 billion, well
above our target and our net debt was reduced to $8.5 billion -
well below the $10 billion that was our target despite the fact, as
the Chairman has mentioned, our commodity price basket was actually
down 3% year on year.
In that context, our margin improvement of five percentage
points was also very encouraging, with a substantial contribution
from the roll out of our operating model. Our process includes
reassessing each business from first principles, and applying
global best practice to every aspect of our operations. These
operational improvements can take several iterations to get right
but they are now supporting improved margins, performance
consistency and increasing cash flowing through the business. This
is creating a fundamentally more robust business, not just a quick
fix.
On the Balance Sheet, our objective has been to strengthen to
enable a return an investment grade rating - consistent with
improving financial resilience in an industry that is likely to see
commodity price volatility as a new normal. And we are targeting a
reinstatement of the dividend by year end.
On the portfolio, as the Chairman has said we will continue to
manage the portfolio dynamically - as you our shareholders should
expect - we are focusing on our high quality, long life assets -
targeting both margin growth and returns.
Let me highlight six numbers that best describe Anglo American
in 2016:
We generated an EBITDA of $6.1 billion, well above our target.
This is a very strong result and remember that our basket price
fell, year on year.
Our cost and volume improvements reflect the progress we
continue to make across the business, building off the solid cost
reductions recorded in 2015. Cost and volume improvements actually
represent around $2 billion improvement for the full year. We had
some headwinds, so on a net basis we hit the target in cash
terms.
We continue to hold our discipline on capital expenditure and we
will maintain that determination going forward.
Attributable free cash reflects the volume and cost work,
despite the prices in our commodity basket. Bringing net debt down
so significantly, I have mentioned and the net debt: EBITDA ratio
has landed inside our target range.
In summary, I am happy to say we have made good progress, but
there is always more to do.
One area where I'm deeply disappointed is safety. After making
good progress during the last two years, we took a step backwards
in 2016. From my perspective and the executive team, it is both
unacceptable and extremely disappointing. While our total injury
frequency rate continues to improve, with a 24% improvement
reported in 2016, management of our higher risk activities has been
a weakness and is the focus of our improvement work.
On the environment, a much more encouraging story for the year.
Since we focused on environmental risks and performance, we have
seen an important reduction in these incidents across the group.
And while you generally won't see this work - it is only when we
have a high level incident do people appreciate why managing these
risks so tightly is critical for the business.
The single number that most clearly reflects the effort made
during last year is the improvement in our margins. As I mentioned,
2016 was clearly a year of two halves, still with the overall
commodity basket price reduction for the year as a whole.
So, our five percentage point improvement in margin compared to
2015 was all the more creditable. I have already talked about the
significant positive impact of the operating model but there are
some other contributing factors that are important mention:
- Portfolio upgrading - we eliminated the cash leakage and sold
lower margin assets. In total, we've either sold or closed 27
assets, reducing the portfolio to 41 - and this will reduce further
once the sale of the Eskom-tied thermal coal mines in South Africa
is completed. We've also added five new projects to the portfolio -
the net effect of which is to enhance the margin profile of the
business;
- Cost reductions across operations and overheads - we've
streamlined and reduced the numbers, both as a consequence of
focusing on the assets that can add material value, the way we run
those assets, the way we operate and the way we work together as an
organisation; and
- Continuing improvements from our marketing model which is
driven by a much more systematic approach to making sure we are
cost effectively getting the right product to the right customer at
the right time.
Today, with 40% fewer assets and considerably fewer people as a
result, we have actually increased our production in copper
equivalent terms by 8% and as a consequence our unit costs are down
by 31% and our productivity - in terms of copper equivalent tonnes
per employee - has improved by 41%. That is transformational
change.
This morning - you may have seen - we released our production
update for the first quarter of this year. I'm pleased to report a
9% increase in our production on a copper equivalent basis versus
the first quarter of 2016, thanks to a broadly strong operational
performance, enhanced by the continued ramp-up of De Beers' Gahcho
Kué operation in Canada, the Minas-Rio iron ore operation in Brazil
and the Grosvenor metallurgical coal operation in Australia. The
operating improvements at Sishen in South Africa and ongoing
portfolio refinements are further strengthening our resilience and
competitive position.
Let me tell you a little bit about where we are going to. As I
have said, today Anglo American is a much more resilient business
and we will continue building on that.
This business is based on a portfolio of high quality assets and
I have talked through the margin, productivity and cost metrics
that show our progress most clearly.
In Diamonds, we have a business that is global in scope and
scale. While each asset may not be Tier 1 in its own right, the
aggregation of assets under the De Beers business adds breadth and
value to our customer product offering.
In PGMs, we are building on our quality resource base and we
understand the imperative to have our assets occupy the left hand
side of the cost curve. We also need to push along with market
developments that we see for fuel cells and jewellery.
In Copper, we have significant potential from our existing
resource base - in Peru, in Chile and longer term in Finland - but
we are not yet at the scale and quality where we would like to be
and so we have work to do.
In Bulks and Other Minerals, we have a great set of individual
assets - but nothing that argues we are operating on a global scale
in a specific product group. We have packaged this cluster of
assets under one team that understands the bulk commodity technical
issues and has demonstrated an ability to drive rapid productivity
and cost improvements on a broad scale, in turn driving positive
cash flows.
Consistent with that approach, we have consolidated our
Marketing functions across all of the commodities (and to be clear,
this excludes diamonds as they are very clearly not a commodity,
every diamond stone being quite unique), so that we get the best of
the logistics and cost opportunities - while learning from each
other how we build different relationships to ensure we are
rewarded for delivering better outcomes for our customers.
As I said at the outset in 2013 - the portfolio element of our
business strategy is driven by asset quality - our focus being
strictly on sustainable margins and returns.
So, today - given the progress we have made on our balance sheet
imperative - that is exactly how we continue to think about the
business - your business - but in a much tighter, more streamlined
configuration, with a portfolio that has both quality and a broader
suite of future development opportunities - if and when the time is
right.
This is not the same business we presented to you back in 2013.
This is a safer, more productive and efficient business, selling
its products at a more competitive price. As a consequence, we
believe the business has improved the quality of its earnings
engine, reflected through a lower cost base. That is, we are a more
resilient business through the commodity price cycle.
And we will continue building on our business improvements,
targeting $1 billion of cost and volume improvements in 2017.
As we look a little further out than the end of this current
year, you may have started to hear us talk more about some of the
technology-led innovations that we are working through - or more
specifically that Tony O'Neill (our Technical Director) is working
through. FutureSmart mining(TM) is how we think about and talk
about how we see the future of mining. This is an industry that has
scaled up over the last few decades - there is no doubt about that
- but we are largely doing things the same way we always did, with
a few remote control trucks thrown in.
However, the real future of mining lies in turning conventional
thinking on its head, and that is our approach. Can you picture
mining deep underground with people safely out of harm's way,
targeting more of the precious ore and less of the waste rock with
all the associated energy and equipment cost savings? Or picture a
mine that draws no fresh water, but recycles all that it requires,
and produces only dry tailings, with all the stability and
environmental benefits that would bring.
Now is the time to make these step changes in mining if we, as
an industry, are to retain our social licences to operate and
access ever more remote and challenging ore bodies. For those of us
with a very real interest in how you extract metals and minerals
safely, sustainably and profitably, these are truly exciting
times.
So, in summary:
-- We managed the portfolio through turbulent times, rigorously
safeguarding value in doing so, and have emerged with a portfolio
of high quality, long life assets with considerable further
potential that we will continue to manage dynamically;
-- Free cash flow generation remains the imperative, giving us
the flexibility to move to the next stage of the company's
evolution;
-- We will therefore continue to:
o roll out the Operating model in order to realise the maximum
potential from our assets;
o implement the Marketing model to maximise the value potential
of the products we produce; and
o keep costs lean, remembering the enhanced sense of discipline
imposed by a challenging price environment.
-- On capital management, we will also maintain the discipline
we have shown. Returns to our shareholders are a priority and we
aim to reinstate the dividend for the end of 2017; and
-- We will ensure our balance sheet discipline through adopting
conservative debt ratios through the cycle.
I trust that gives you a fuller picture of the journey we have
been on and clarifies our future direction in terms of priorities.
I speak for the entire executive team when I say that we are
aligned around our objectives and excited about the opportunities
that are in front of us.
Finally, ladies and gentlemen, two farewells and a welcome. To
René Médori, our Finance Director for the last 12 years, I am
grateful for your steady hand and wise counsel and wish you a much
deserved retirement. We welcome Stephen Pearce who will be joining
the Board and succeeding René after today's meeting. Stephen has
been getting to know the business over the last couple of months
since he joined us and I know he will be a strong addition to the
team.
To our chairman, Sir John Parker, for his guidance and
leadership across so many fronts. On behalf of the entire
management team, we thank him and wish him well as he steps down as
chairman later this year.
Thank you.
This information is provided by RNS
The company news service from the London Stock Exchange
END
AGMOKQDQABKDNQB
(END) Dow Jones Newswires
April 24, 2017 12:46 ET (16:46 GMT)
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