Chief Executive Officer’s Report
The business strategy put in place five years ago has served the Company well in enabling us to take advantage of the upswing in demand for the commodities we produce. However, during the year we recognised a need to build on our strategy to ensure it could take us forward over the next decades.
We have been talking for the last three or four years about the processes of urbanisation and industrialisation across the developing world leading to a secular change in commodity demand that is different from the traditional business cycle.
We needed to ensure that our business strategy recognised this probability and could evolve to encapsulate everything needed to realise the potential benefits from a multi-decade secular change in demand for commodities.
The result has been a refinement of our original strategy. We have chosen to represent this refined strategy in a simple form, via a seven-layered pyramid, that I believe assists our constituencies in understanding the critical drivers to our success: our seven strategic value drivers.
This Report provides an overview of our business against each of these seven strategic drivers and provides some examples of achievements during the year that reflect how we put these drivers into action.
People
People will always be fundamental to our success and they form the foundation of our business strategy. Our people find resources, develop projects, operate world-class facilities and deliver our products reliably and efficiently to customers all over the world. Our strong performance during this year was the result of the commitment and hard work of our 38,000 employees and the large number of contractors who support them. This is a very busy time in the resources industry and our continued success will rely on our people and their determination to outperform.
Licence to Operate
While we have recognised for some time the need to earn our right to be part of the various communities impacted by our presence, the way in which we behave as a Company has never been more important, particularly as we compete for access to resources in regions whose communities need to be convinced of the benefits we bring to them.
The health and safety of our people continue to be paramount to our success, our ‘licence to operate’ and our sustainability as a business and industry. We continue to strive towards a state of ‘Zero Harm’ to our people. Yet three people lost their lives at our operations during the year and we were seriously concerned by some increasing injury trends in the first half of the year. While the trend improved in the second half through a concerted management focus, the statistics reinforce our belief that that we must never take the safety of our people for granted.
World-class Assets
Our strong and diverse asset base, giving us exposure to the production and sale of more than 20 individual commodities throughout the world, will continue to underpin the success of the Company. This year, in response to record demand, we stretched production from these assets to new levels, with annual production records set for aluminium, copper, iron ore, nickel and natural gas.
The BHP Billiton Way
In an extremely challenging industry environment, with the cost and availability of both people and essential materials under enormous pressure, the knowledge-sharing, systems and processes we can apply throughout our global operations give us a significant competitive advantage. This year we expanded our Operating Excellence program and commenced Business Excellence across BHP Billiton. In addition to established programs such as Six Sigma and networks and knowledge sharing activities, we have expanded the function to include a whole of business focus on excellence.
Financial Strength and Discipline
US$5.0 billion dollars were invested in growth projects during the year and a further US$1.9 billion on capital expenditure that goes to improve our existing assets – we were able to maintain our strong A credit rating, reduce debt further and return significant funds to shareholders. Excess capital was returned to shareholders through share buy-backs and dividends totalling US$5.0 billion and US$2.2 billion respectively. Since 2001, we have returned a total of US$15.5 billion to our shareholders.
Project Pipeline
Four new projects came online during the year. They were: Escondida Norte and Escondida Sulphide Leach in Chile and Worsley DCP and RGP2 in Western Australia. Another seven projects: Shenzi, Stybarrow, NWS Angel, Alumar Refinery Expansion, RGP3, Samarco and Koala Underground were approved to be developed and come online over the next three to four years. Our development pipeline currently shows 23 projects in either execution or feasibility, representing a total investment of US$13.8 billion.
Growth Projects
The integration of WMC Resources’ assets into our businesses and the sale of its fertiliser business were successfully completed during the year with the result of significantly boosting nickel and copper production during a year of strong prices, adding uranium to our product range and providing growth options for the future while continuing to optimise our portfolio.
Perhaps more quietly, our global exploration activities continued to increase as we search for the next set of options for growth, many of which will be in regions that will create their own set of challenges. However, we have demonstrated our capabilities for developing projects and operating in new environments. As we focus more intently on opportunities in sub-Saharan Africa, for example, we do so knowing we have already developed and now successfully operate one of the world’s most cost-efficient aluminium smelters in Mozambique and own and operate a world-class nickel asset in Colombia and deliver oil and gas from our operations in Pakistan and Algeria.
The drivers outlined above show our commitment to meeting the opportunities presented by what we expect to be the extensive urbanisation and industrialisation of the developing world. We do not suggest that this growth will be uninterrupted, constant or predictable. However, we are confident that as well as positioning us for ongoing growth, BHP Billiton’s strategy will enable us to provide value to shareholders and sustain our business throughout any downturns.
Let me leave you, however, with a simple proposition: that China is determined to become a knowledge economy by 2050. To achieve its vision, hundreds of millions of people will need to move from rural to urban areas. That will require residential dwellings, industrial facilities and associated infrastructure. All the raw materials that we produce and sell are essential elements of these infrastructure requirements. We believe the world may be witnessing just the beginning of a whole new period of change and BHP Billiton is an essential element of that change.
Chip Goodyear