Director' Report
Results and dividends
The Group’s financial results are set out in the Financial Information section and in the Financial Review section of this report.
The Board recommends a final dividend of 34¢ per share amounting to $326 million. The total 2007 dividend is $479 million or 50¢ per share (2006 $373 million or 41.6¢ per share). The shareholders will be asked to approve the dividend at the Annual General Meeting on 6 May 2008, for payment on 16 May 2008 to ordinary shareholders whose names were on the register on 25 April 2008.
Principal activities
Xstrata is a major global diversified mining group, listed on the London and Swiss stock exchanges with its headquarters in Zug, Switzerland. Additional information on the Group’s operations is provided in the Business Review, Financial Review and Operational Review sections of this report.
Review of the business, future developments and post balance sheet events
A review of the business and the future developments of the Group is presented in the Chairman’s Statement, Chief Executive’s Report and the Business Review from page 2 to page 92.
A full description of acquisitions, disposals, and changes to Group companies undertaken during the year, including post balance sheet events, is included in the Financial Review on pages 40 to 53.
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.
Financial instruments
The Group’s financial risk management objectives and policies are discussed on pages 40 to 53 of the Financial Review and in Note 36 of the Financial Statements.
Health, safety, environment & community (HSEC)
An overview of Xstrata’s health, safety and environmental performance and community participation is presented in the Business Review section of this report on pages 20 to 27. A separate Sustainability report is published to provide more detailed information and is available at www.xstrata.com
Political and charitable donations
In accordance with Xstrata’s policy, no political donations were made in 2007. 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 2007, Xstrata set aside $102 million for CSI initiatives. Donations during the year to UK registered charities totalled £1,266,250.
Employee policies and involvement
The Group’s policy and performance regarding employee involvement, disabled employees, labour relations and employee share schemes is described in the Business Review section of this report on pages 15 to 27.
Corporate governance
A report on corporate governance and compliance with the provisions of the Combined Code is set out on pages 110 to 120.
Directors and their interests
The directors as at 31 December 2007 were:
| Director |
Position |
First appointed |
Re-elected |
Retirement by rotation at AGM |
|---|---|---|---|---|
| Mick Davis | Chief Executive | 25 February 2002 | 8 May 2007 | |
| Ivan Glasenberg | Non-executive | 25 February 2002 | 9 May 2006 | |
| Paul Hazen | Non-executive* | 25 February 2002 | 9 May 2005 | Standing for re-election |
| Robert MacDonnell | Non-executive* | 25 February 2002 | 9 May 2006 | |
| Trevor Reid | Chief Financial Officer | 25 February 2002 | 8 May 2007 | |
| Sir Steve Robson | Non-executive* | 25 February 2002 | 8 May 2007 | |
| David Rough | Deputy Chairman, Senior Independent director and non-executive* |
1 April 2002 | 8 May 2007 | |
| Ian Strachan | Non-executive* | 8 May 2003 | 9 May 2005 | Standing for re-election |
| Willy Strothotte | Chairman and non-executive | 25 February 2002 | 9 May 2005 | Standing for re-election |
| Santiago Zaldumbide | Executive | 25 February 2002 | 9 May 2007 | |
| *Denotes independent director | ||||
In addition to the directors listed above, Dr Fred Roux was a director until his resignation on 7 August 2007.
Appointment of directors
The rules for the replacement and appointment of directors are set out in the Articles of Association. Directors may only be appointed by the shareholders of the Company by ordinary resolution and not by the Board of Directors. Under the terms of a Relationship Agreement to which the Company is a party with Glencore International AG (“Glencore”) dated 20 March 2002, Glencore, as a controlling shareholder (as such term is defined in the Agreement), can nominate up to three directors or (if lower or higher) such number of directors equal to one less than the number of directors who are independent directors.
At every Annual General Meeting of Xstrata, one-third of the directors or if their number is not three or a multiple of three, the number nearest to one-third, but at least one, must retire by rotation. The directors to retire are those who have been longest in office. Any director who has, at the start of the Annual General Meeting, been in office for more than three years since his last appointment or reappointment shall retire at the Annual General Meeting. As between those who were appointed or reappointed on the same day, those to retire are (unless they otherwise agree) determined by lot. A retiring director is eligible for re-election.
In accordance with the Articles of Association, three directors will retire and offer themselves for re-election at the forthcoming Annual General Meeting. Details of the resolutions that will be put to the Annual General Meeting are given in the Notice of Annual General Meeting. Further details about the directors and their roles within the Group are given in the directors’ biographies on page 99.
Powers of the directors
Subject to the Company’s Memorandum and Articles of Association, UK legislation, and to any directions given by special resolution, the business of the Company is managed by the Board which may exercise all the powers of the Company. The Articles of Association contain specific provisions concerning the Company’s power to borrow money and also provide the power to make purchases of any of its own shares. The directors have no existing authority to purchase the Company’s own shares. The directors have been authorised to allot and issue ordinary shares. These powers are exercised under authority of resolutions of the Company passed at its Annual General Meeting. Further details of the authorities the Company will be seeking at the next Annual General Meeting to issue and allot ordinary shares of $0.50 each are set out on page 108 of this report.
Details of interests in the share capital of the Company of those directors in office as at 31 December 2007 are given below. As of the date of this report, there have been no changes. None of the shares were held non-beneficially. No director was interested in the shares of any subsidiary Company.
| Name of director |
Ordinary shares held beneficially as at 1 January 2007 |
Ordinary shares held beneficially as at 31 December 2007 |
Name of director |
Ordinary shares held beneficially as at 1 January 2007 |
Ordinary shares held beneficially as at 31 December 2007 |
|---|---|---|---|---|---|
| Executive | Non-executive | ||||
| Mick Davis | 195,173 | 195,173 | Ivan Glasenberg | – | – |
| Trevor Reid | – | – | Paul Hazen | 238,213 | 238,213 |
| Santiago Zaldumbide | – | – | Robert MacDonnell | 394,560 | 304,560 |
| Sir Steve Robson | – | – | |||
| David Rough | 13,604 | 13,604 | |||
| Willy Strothotte | – | – | |||
| Ian Strachan | 8,666 | 8,666 |
In addition to the above interests in shares, the executive directors, along with other employees, also have interests in the share capital of the Company in the form of conditional rights to free shares and options to subscribe for shares and deferred bonus shares. Details of these interests are disclosed in the Directors’ Remuneration Report on pages 121 to 135.
Share capital
At the date of this report, the issued share capital of the Company comprised 977,716,921 shares, divided into 977,666,920 ordinary shares with a nominal value of $0.50 each share, 50,000 deferred shares with a nominal value of £1.00 each share and one special voting share with a nominal value of $0.50. Further details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set out below.
At the Annual General Meeting on 8 May 2007, a resolution was passed reducing the authorised ordinary share capital of the Company from $7,554,974,199.00 by the cancellation of 13,609,948,397 authorised but unissued ordinary shares pursuant to section 121(2)(e) of the Companies Act 1985 which resulted in an authorised share capital of $750,000,000.50 and £50,000 divided into 1,500,000,000 ordinary shares of $0.50 each, 50,000 non-voting deferred shares of £1.00 each and one special voting share of $0.50.
On 15 August 2003 Xstrata Capital Corporation A.V.V. (“Xstrata Capital”) issued $600,000,000 3.95% guaranteed convertible bonds due 2010. The bonds were convertible into preference shares issued by Xstrata Capital and then exchanged for Xstrata ordinary shares. During the course of the year, notice was given in respect of 214,419 bonds to convert them into Xstrata Capital preference shares which were then exchanged into Xstrata ordinary shares. The total number of shares issued in the year resulting from these conversions totalled 24,516,537 shares. Following these conversions, no further bonds remain outstanding.
On 16 October 2006, the Financial Services Authority as UK Listing Authority approved the admission to the Official List by way of blocklisting of 13,575,432 ordinary shares of $0.50 each to be issued upon conversion of the Xstrata Capital Corporation A.V.V. 4% Guaranteed Convertible Bonds due 2017.
The ordinary issued share capital was increased on 31 January 2007 when the directors issued and allotted four million new ordinary shares of $0.50 each to K.B. (C.I.) Nominees Limited. The ordinary issued share capital was further increased on 16 January 2008 when the directors issued and allotted six million new ordinary shares of $0.50 each to K.B. (C.I.) Nominees Limited. Both issues were made for the purposes of the Company’s Employee Share Ownership Trust, an employees’ share scheme. The four million and six million new ordinary shares rank pari passu with the existing ordinary shares, trade on the London Stock Exchange and the SWX and were admitted to the Official List on 7 February 2007 and 22 January 2008 respectively.
The Company has in place an equity capital management programme (“ECMP”) under which up to 10% of the issued share capital of the Company can be purchased in the market by Batiss Investments Limited (“Batiss”). During the course of the year, Batiss purchased ordinary shares of $0.50 each in Xstrata through the ECMP. On 18 March 2008, the total number of shares held by Batiss amounts to 9,310,000 ordinary shares or 0.95% of Xstrata's issued ordinary share capital.
Share rights
The rights and obligations attached to the Company’s ordinary shares are set out in the Articles of Association copies of which can be obtained from Companies House in the UK or by writing to the Company Secretary. Subject to the Companies Acts (as defined in the Articles of Association), and without prejudice to any rights attached to any existing shares or class of shares, any share may be issued with such rights or restrictions as the Company may by ordinary resolution determine or, subject to and in default of such determination, as the Board may determine.
Ordinary shares
Holders of ordinary shares are entitled to attend and speak at general meetings of the Company, and to appoint proxies to exercise their rights. Holders of ordinary shares may receive a dividend and on a winding up may share in the assets of the Company.
Deferred shares
The holders of deferred shares do not have the right to receive notice of any general meeting of the Company nor the right to attend, speak or vote at any such general meeting. The deferred shares have no rights to dividends and, on a winding-up or other return of capital, entitle the holder only to the repayment of the amounts paid upon such shares after repayment of the nominal amount paid up on the ordinary shares, the nominal amount paid up on the special voting share plus the payment of GBP100,000 per ordinary share. The Company may, at its option, redeem all of the deferred shares in issue at any time (but subject to the minimum capital requirement of the Companies Act 1985) at a price not exceeding GBP1.00 for each share redeemed to be paid to the relevant registered holders of the shares.
Special voting share
Certain rights, that are inalienable under Swiss law, have been preserved in the Xstrata plc Articles of Association by creating a special voting share that carries weighted voting rights sufficient to defeat any resolution which could amend or remove these entrenched rights. The holder of the special voting share is the Law Debenture Trust Corporation plc which has entered into a voting agreement with the Company, specifying the conditions upon which it is entitled to exercise its right to vote. The special voting share does not carry a right to receive dividends and is entitled to no more than the amount of capital paid up in the event of liquidation.
Shares held by Xstrata plc Employee Share Ownership Trusts
At 31 December 2007, the trustee of the Xstrata plc Employee Share Ownership Trusts, which is an independent trustee, held 3,461,913 shares under the terms of the trusts for the benefit of employees and former employees of the Company. The trusts are discretionary trusts and the shares are held to meet employees’ entitlements under the Company’s Long Term Incentive Plan and Service Contract Arrangements. Employees have no voting rights in relation to the shares while they are held in trust. The trustee has full discretion to exercise the voting rights or to abstain from voting. Shares acquired by employees through the Company’s Long Term Incentive Plan rank pari passu with shares in issue and have no special rights.
Voting rights
Subject to the rights and restrictions attached to any class of shares:
- (i) on a show of hands, every member present in person or by proxy has one vote (except that neither the holder of the special voting share nor any holder of deferred share(s) is entitled to vote) and a proxy appointed by a member on behalf of such member’s shareholding shall also have one vote;
- (ii) on a poll:
- (A) every member present in person or by proxy (except the holder of the special voting share and any holder of the deferred share(s) shall have:
- (i) one vote for each fully paid share;
- (ii) for such partly-paid share, such proportion of the votes attached to a fully paid share as would mean that such proportion is the same as the proportion of the amount paid up on the total issue price of that share;
- (B) the holder of the special voting share shall, on an Entrenched Rights Action, have enough votes to defeat the resolution but, on all other decisions, shall have no votes; and
- (C) the holders of the deferred shares shall not be entitled to vote.
- (A) every member present in person or by proxy (except the holder of the special voting share and any holder of the deferred share(s) shall have:
Restrictions on transfer of shares
There are no restrictions on the transfer of ordinary shares in the Company other than:
- (i) the right of the Board to refuse to register the transfer of a certificated share which is not a fully paid share provided that the refusal does not prevent dealings in shares of that class in the Company from taking place on an open and proper basis. The Board may also refuse to register the transfer of a certificated share, unless the instrument of transfer (a) is lodged, duly stamped (if applicable) with the Company and (except where the shares are registered in the name of a recognised person and no certificate shall have been issued therefor) is accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may require; (b) is in respect of one class of share only; and (c) is in favour of not more than four persons;
- (ii) pursuant to the Company’s share dealing code whereby the directors of the Company require and employees may require approval to deal in the Company’s shares;
- (iii) certain restrictions may from time to time be imposed by laws and regulations (for example insider trading laws); and
- (iv) where a person whose shares represent at least a 0.25% interest in the Company’s shares, has been served with a disclosure notice and has failed to provide the Company with information concerning interests in those shares, except as otherwise provided in the Articles.
The Company is not aware of any arrangements between shareholders that may result in restrictions on the transfer of ordinary shares and for voting rights.
The Board shall decline to register any transfer of the special voting share unless approved in accordance with a voting deed between the Company and the holder of the special voting share.
Major interests in shares
On 18 March 2008, the following major interests in the ordinary issued shares of $0.50 each of the Company had been notified to the Company:
| Name of shareholder | Number of Ordinary shares of $0.50 each | % of Ordinary issued share capital |
|---|---|---|
| Glencore International AG | 336,801,333 | 34.44 |
| Legal & General Group Plc | 29,999,246 | 3.06 |
Directors’ liabilities
The Company has granted qualifying third party indemnities to each of its directors against any liability which attaches to them in defending proceedings brought against them, to the extent permitted by the Companies Act 2006. In addition, directors and officers of the Company and its subsidiaries are covered by directors and officers liability insurance.
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 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 2007.
Articles of association
The Company’s Articles of Association (adopted by special resolution on 19 March 2002 and amended by special resolution passed on 9 May 2005) may only be amended by special resolution at a general meeting of the shareholders. At the Annual General Meeting to be held on 6 May 2008, resolutions will be put to shareholders proposing the adoption of new Articles of Association, as noted on page 108 of this report. A summary of the principal proposed changes can be found in the explanatory notes to the Notice of Annual General Meeting.
The Articles have been drafted so that certain rights that are inalienable under Swiss law and that holders of Xstrata AG shares enjoyed prior to the Xstrata Initial Public Offering are preserved in the Company subject to the following arrangements. Under English law the Articles can always be amended by a special resolution (requiring a 75% majority of those present and voting, in person or by proxy). Consequently, a special voting share has been created which carries weighted voting rights sufficient to defeat any resolution which would amend certain of the Articles (“Entrenched Rights Actions”). The holder of the special voting share, The Law Debenture Trust Corporation plc has agreed under a voting agreement with the Company, to exercise its votes to vote against (and so defeat) any resolution to amend or remove an Entrenched Rights Action except in limited circumstances. This structure has the effect of entrenching certain rights into the Articles.
Significant agreements
The Companies Act 2006 requires the disclosure of the following significant agreements that contain provisions entitling the counterparties to exercise termination or other rights in the event of a change of control of the Company:
Relationship Agreement
The Company is party to the Relationship Agreement with Glencore International AG (“Glencore”) dated 20 March 2002. The Agreement regulates the continuing relationship between the parties. In particular it ensures that (a) the Company is capable of carrying on its business independently of Glencore as a controlling shareholder (as such term is defined in the Agreement); (b) transactions and relationships between Glencore (or any of its subsidiaries or affiliates) and the Company are at an arm’s length and on normal commercial terms; (c) Glencore shall be entitled to nominate up to three directors or (if lower or higher) such number of directors equal to one less than the number of directors who are independent directors; and, (d) directors of the Company nominated by Glencore shall not be permitted to vote on any Board resolution, unless otherwise agreed by the independent directors, to approve any aspect of the Company’s involvement in or enforcement of any arrangements, agreements or transactions with Glencore or any of its subsidiaries or affiliates. It is expressed that the Agreement terminates in the event that Glencore ceases to be a controlling shareholder of the Company following a sale or disposal of shares in the Company or if the Company ceases to be listed on the Official List and traded on the London Stock Exchange.
$4.68 billion Syndicated Facility
On 25 July 2007, the Company entered into a $4.68 billion multicurrency revolving loan facility agreement with, amongst others, Barclays Capital and The Royal Bank of Scotland plc (as arrangers and bookrunners), Barclays Bank plc (as the facility agent) and the banks and financial institutions named therein as lenders (the “Syndicated Facilities Agreement”).
Upon a change of control, no borrower may make a further utilisation unless otherwise agreed. The majority lenders, as defined in the agreement, can also require that the Syndicated Facilities Agreement is immediately terminated and declare that all outstanding loans become immediately payable. Alternatively, if the majority lenders do not require cancellation, but a specific lender does on the basis of internal policy, that particular lender can require that its commitments are cancelled and all amounts outstanding in respect of that lender’s commitments shall become immediately payable.
$2 billion Revolving Loan Facility
On 8 October 2007, the Company entered into a $2 billion multicurrency revolving loan facility agreement with, amongst others, Barclays Bank plc (as the facility agent) and the banks and financial institutions named therein as lenders. In this agreement, the change of control provisions are exactly the same as those in the Syndicated Facilities Agreement.
$1.5 billion Revolving Loan Facility
On 6 December 2007, the Company entered into a $1.5 billion multicurrency revolving loan facility agreement with, amongst others, Barclays Bank plc (as the facility agent) and the banks and financial institutions named therein as lenders. In this agreement, the change of control provisions are exactly the same as those in the Syndicated Facilities Agreement.
$500 million Notes due 2037
On 30 November 2007, Xstrata Finance (Canada) Limited issued $500 million 6.90% notes due 2037, guaranteed by the Company, Xstrata (Schweiz) AG and Xstrata Finance (Dubai) Limited. The terms of these notes require Xstrata Finance (Canada) Limited to make an offer to each noteholder to repurchase all or any part of such holder’s notes at a repurchase price in cash equal to 101% of the aggregate principal amount of the notes so repurchased plus any accrued and unpaid interest on the principal amount of the notes repurchased to the date of repurchase, if both of the following occur:
1) a change of control of the Company (as defined in the terms and conditions of the notes), and 2) the notes are rated below investment grade by each of Moody’s and S&P on any date from 30 days prior to the date of the public notice of an arrangement that could result in a change of control (as defined in the terms and conditions of the notes) until the end of the 60-day period following public notice of the occurrence of a change of control.Xstrata plc Long Term Incentive Plan
The rules of the Company's employee share plans set out the consequences of a change of control of the Company on employee's rights under the plans. Generally such rights will vest on a change of control and participants will become entitled to acquire shares in the Company or, in some cases, to the payment of a cash sum of equivalent value.
Annual General Meeting
The Annual General Meeting of the Company will be held at Theater-Casino Zug, Artherstrasse 2-4, Zug, Switzerland on Tuesday, 6 May 2008 at 11:00 am (Central European Summer Time. A live webcast will be provided of the Annual General Meeting through the Company’s website www.xstrata.com. A telephone dial-in facility will also be provided on a listen-only basis. Further details of the dial-in facility and webcast will be available from Xstrata’s website www.xstrata.com at least one week in advance of the meeting.
Special business at the Annual General Meeting
The Notice convening the meeting is sent to shareholders separately with this Report. Resolutions 1 to 8 are termed ordinary business while resolutions 9 to 13 will be special business. These resolutions are:
Resolution 9 gives authority to the directors in accordance with Section 80 of the Companies Act 1985 (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 $161,944,486 (equivalent to 323,888,972 ordinary shares of $0.50 each) (being the lesser of the Company’s authorised but unissued share capital and one-third of its issued capital).
This represents one-third of the issued ordinary share capital of the Company as at 31 December 2007. The authority extends until the end of the next Annual General Meeting. The Board does not have any present intention of exercising this authority other than for the purposes of the Company’s employee share schemes.
Resolution 10 will be proposed as a Special Resolution and will empower the directors to allot for cash, equity securities of a nominal amount not exceeding $24,291,673 (equivalent to 48,583,346 ordinary shares of $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 Annual General Meeting. Any issue of shares for cash will, however, still be subject to the requirements of the UK Listing Authority.
Resolutions 11 and 12 will be proposed as Special Resolutions to approve the amendment of certain articles of the Articles of Association following the implementation of certain parts of the Companies Act 2006. An explanation of the proposed amendments to the Articles is given in the circular contained within the Notice convening the meeting.
Resolution 13 will be proposed as an Ordinary Resolution to approve changes to the Xstrata plc Added Value Incentive Plan. An explanation of the proposed changes to the Plan is given in the circular contained within the Notice convening the meeting.
Electronic Proxy Voting
Registered shareholders have the opportunity 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.uk.computershare.com/Investor/Proxy/. As usual, paper proxy cards will be distributed to all registered shareholders with the Notice of Annual General Meeting.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored member and those CREST members who have appointed any voting service provider(s) should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. The Company may treat as invalid a CREST proxy instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Electronic copies of the Annual Review and Financial Statements 2007 and other publications
A copy of the 2007 Annual Report (which includes the Business Review, Operating and Financial Reviews, and Financial Statements, Directors’ Report, Corporate Governance Report and Remuneration Report), the Notice of the Annual General Meeting, the 2007 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 reappoint Ernst & Young LLP as auditors and to authorise the Board to determine the auditors’ remuneration.
Disclosure of information to auditors
Having made enquiries of fellow directors and of the Company’s auditors, each director confirms that to the best of each director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware; and, each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of the information.
Going concern
The directors believe, after making inquiries that they consider to be appropriate, that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.
By order of the Board
Richard Elliston
Company Secretary
18 March 2008