Directors' report
Results and dividend
The Group profit for the year ended 31 December 2004 on ordinary activities after taxation and minority interests was US$1,052.9 million compared to US$277 million in the previous year. The Group consolidated profit and loss account and other financial information is produced on pages 90 to 151 of this annual report.
The Directors have declared a dividend of 16US¢ per share amounting to $100 million, which represents two thirds of the full year dividend. The total 2004 dividend is $150 million or 24US¢ per share (2003 $126 million or 20US¢ per share). The shareholders will be asked to approve the dividend at the Annual General Meeting on 9 May 2005, for payment on 20 May 2005 to ordinary shareholders whose names were on the register on 29 April 2005.
Principal activities and review of the business
Xstrata plc is an international metals and mining company. The Group's activities are managed through four major global Business Units:
Xstrata Alloys is the world's largest producer of ferrochrome and operates 18 furnaces with a captive supply of most major raw material inputs, including chrome ore from 8 chrome mines and a largely self-reliant reductant supply, all of which are located in South Africa. Xstrata Alloys also produces primary vanadium from an integrated production facility in South Africa.
Xstrata Coal is the world's largest export thermal coal producer and a significant producer of coking coal. Xstrata Coal has interests in 34 operating coal mines, 21 of which are located in Australia and 13 of which are located in South Africa.
Xstrata Copper has interests in three operating mines, two in North Queensland, Australia and one in Argentina, together with processing, smelting and refining plants. Xstrata Copper has also begun exploration and feasibility work on the Las Bambas copper project in Cotabambas Province, Peru.
Xstrata Zinc has zinc smelting operations in Spain and Germany, interests in three operating mines and a lead smelter in Australia and a lead refining plant in the United Kingdom.
In addition, Xstrata owns Xstrata Technology, which develops, tests and markets technology for the global mining, mineral processing and metals extraction industries.
Additional information on the Group's operations is provided on pages 164 to 166 of this report.
Full details of the principal activities and performance of these and other Group businesses in the year ended 31 December 2004, together with an indication of likely future developments of the Company and its subsidiaries, are set out in the Chairman's Statement, Chief Executive's Report and the Financial and Operating Reviews on pages 8 to 55.
A full description of disposals, acquisitions and changes to Group companies undertaken during the year, including post balance sheet events, is included in the Financial Review on pages 25 to 27 of this annual report.
Exploration and research, development
The Group business units carry out exploration and research and development activities that are necessary to support and expand their operations.
Health, safety, environment & community (hsec)
Xstrata is committed to the principles of sustainable development and to achieving the highest standards of health, safety and environmental performance. The Group Business Principles set out an ethical framework for Xstrata's global activities. To further support this commitment, Xstrata developed and introduced a Group HSEC policy and 17 HSEC management standards in 2004, and began implementing a comprehensive assurance programme to ensure compliance against these standards. An HSEC Committee was established by the Board in February 2005 and underscores the Board's view of the importance of and its commitment to HSEC. Details of this Committee are given on page 72.
The General Manager Health Safety and Environment reports to the Chief Executive and oversees the global implementation, review and assurance of the relevant policies and standards, and manages the Group's interface with stakeholders on health, safety and environmental issues. The 2004 Sustainability Report, which provides details of the Group's economic, environmental and social performance as well as its sustainability initiatives, will be available from Xstrata's website (or as a hard copy on request) in April 2005. Further details of Xstrata's initiatives in the areas of health, safety, environment and community, including case studies, are available from our website: www.xstrata.com.
Political and charitable donations
In accordance with Xstrata's corporate social involvement (CSI) policy, no political donations were made in 2004. Xstrata's corporate social involvement expenditure supports initiatives that benefit the communities local to the Group's operations in the areas of health, education, sport and the arts, community development, job creation and enterprise. In 2004, Xstrata set aside $10.5 million for CSI initiatives.
Employee policies and involvement
The Group's policy is to communicate honestly with employees and encourage consultation between employees and management. The Group's Statement of Business Principles is available from our website and is published separately and distributed to every employee and contractor in their native language. No form of workplace discrimination is tolerated.
Disabled employees
The Group gives full consideration to applications for employment from disabled persons, where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled, it is the Group's policy wherever practicable to provide continuing employment under normal terms and conditions and to provide training and career development and promotion to disabled employees wherever appropriate.
Labour relations
The Group has approximately 24,000 employees worldwide including contractors. All employees are free to join a union of their choice, but participation across the Group varies. In Australia, the predominant union membership for coal mining employees is with the Construction Forestry, Mining and Energy Union (CFMEU), the Colliery Officials Association (COA) and the Australian Collieries Staff Association (ACSA); however, the collection of union membership statistics in this country is illegal.
In South Africa, about 72 per cent of Xstrata Coal employees are represented by the National Union of Mineworkers and 45 per cent of Xstrata Alloys employees are union members.
Around 45 per cent of Xstrata Zinc employees are union members, while only one per cent of Xstrata Copper employees have union membership, although 44 per cent are covered by collective agreements.
The Group strives to ensure and believes that all of the Group's operations have, in general, good relations with their employees and unions.
Employee share schemes
The Company has a policy of encouraging employees to acquire Xstrata plc shares and linking a significant element of employees' variable reward to the performance of the Xstrata plc Group. Executive directors and employees of the Company and its subsidiaries are eligible to participate at the discretion of the Remuneration Committee in the Xstrata Long Term Incentive Plan (LTIP). The LTIP has two elements i) a free contingent award of ordinary shares which vest in three years and ii) a share option to acquire ordinary shares at the exercise price after three years. The vesting of awards and options depends upon the satisfaction of stipulated performance conditions. Further details of the above and of other Company's share schemes are set out in Note 29 to the Financial Statements.
Corporate governance
A report on corporate governance and compliance with the provisions of the Combined Code is set out on pages 64 to 72.
Directors and their interests
The directors as at 31 December 2004 were:
In accordance with the Articles of Association, four directors will retire and offer themselves for re-election. Details of the resolutions that will be put to the AGM are given in the Notice to the AGM. Further details about the directors and their roles within the Group are given in the directors' biographies on pages 56 and 57.
Details of interests in the share capital of the Company of those directors in office as at 31 December 2004 are given below. As of the date of this report, there have been no changes. None of the shares were held non-beneficially.
In addition to the above interests in shares, certain of the directors also have interests in the share capital of the Company in the form of options to subscribe for shares. Details of these interests are disclosed in the Directors' Remuneration Report on pages 73 to 87.
Share capital
Details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set out in Note 20 to the Financial Statements.
Under the Companies Act 1985 (the "Act") the Board is not able to allot shares except with the general or specific authority of the shareholders. An Ordinary Resolution will therefore be proposed at the forthcoming Annual General Meeting to authorise the Directors of the Company in accordance with Section 80 of the Act to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 80(2) of the Act) of the Company up to an aggregate nominal amount of US$105,250,402 (equivalent to 210,500,804 ordinary shares of US$0.50 each) (being the lesser of the Company's authorised but unissued share capital and one third of its issued capital).
This represents 33.33% of the issued ordinary share capital of the Company as of the date of this report. The authority extends until the end of the next AGM. The Board does not have any present intention of exercising this authority other than for the purposes of the Company's employee share schemes.
The Act provides that, when equity securities are being issued for cash, such securities must first be offered to existing shareholders unless the Board is given a power to allot them without regard to that requirement. A Special Resolution will therefore be proposed at the forthcoming AGM to empower the Board to allot for cash, equity securities of a nominal amount not exceeding US$15,787,560 (equivalent to 31,575,120 ordinary shares of US$0.50 each, representing 5% of the issued share capital) without first offering such securities to existing ordinary shareholders. The authority extends until the end of the next AGM. Any issue of shares for cash will, however, still be subject to the requirements of the UK Listing Authority.
Major interests in shares
On 1 March 2005, the following major interests in the ordinary issued shares of US$0.50 each of the Company had been notified to the Company in accordance with Sections 198 to 208 of the Act:
Details of transactions between the Group and the shareholders detailed above are given in Note 27 to the Financial Statements.
Creditor payment policy and practice
In view of the international nature of the Group's operations there is no specific group-wide policy in respect of payments to suppliers. Individual operating companies are responsible for agreeing terms and conditions for their business transactions and ensuring that suppliers are aware of the terms of payment. It is the Group policy that payments are made in accordance with those terms, provided that all trading terms and conditions have been met by the supplier.
Xstrata plc is a holding company with no business activity other than the holding of investments in the group and therefore had no trade creditors at 31 December 2004.
Annual general meeting
The Annual General Meeting of the Company will be held at 11.00 am (Central European Time) on Monday, 9 May 2005 at Congress Center Metalli, Parkhotel Zug, 6300 Zug, Switzerland with a satellite meeting held concurrently at 10.00 am (BST) at the Media & Business Complex, London Stock Exchange, 10 Paternotster Square, London EC4M 7LS.
The Notice convening the meeting is sent to shareholders separately with this Report. Resolutions will also be proposed for items of special business, namely approval of the Xstrata plc Added Value Incentive Plan, authorisation to the directors to allot ordinary shares and the disapplication of pre-emption rights, as explained in the paragraph above entitled Share Capital, and the amendment of certain articles of the Articles of Association. An explanation of the proposed amendments to the Articles is given in the Notice convening the meeting.
Electronic proxy voting
Registered shareholders will have the opportunity this year to submit their votes (or abstain) on all resolutions proposed at the Annual General Meeting by means of an electronic voting facility operated by the Company's Registrar, Computershare Investor Services plc. This facility can be accessed by visiting www.computershare.com. As usual, paper proxy cards will be distributed to all registered shareholders with the Notice of Annual General Meeting.
Electronic copies of the annual report 2004 and other publications
A copy of the Annual Report 2004 (which includes the Annual Review, Directors' Report, Corporate Governance Report and Remuneration Report), the Notice of the Annual General Meeting, the 2004 Sustainability Report and other corporate publications, reports, press releases and announcements are available on the Company's website at www.xstrata.com.
AUDITORS
A resolution will be put to the members at the forthcoming Annual General Meeting to re-appoint Ernst & Young LLP as auditors and to authorise the Board to determine the auditor's remuneration.
On behalf of the Board
Richard Elliston
Company Secretary
1 March 2005