2008 marked the end to the sustained upswing in commodity prices, with a particularly steep price decline in the second half of the year. Thus, the nature of the challenge for management changed markedly from managing the problems of plenty – delivering expansion projects in an overheated market – to reducing costs and maximising efficiencies in the existing business without compromising the significant long term growth options that the Group retains
The Group achieved a strong financial performance for the year and management moved fast to adapt the business to the new circumstances as recession began to take hold. Indeed, several initiatives started over the past two years, designed to create more rigorous management systems and a more aligned ‘One Anglo’ approach, have positioned the Group well for the current environment. Value based management, the Asset Optimisation programme, the move to a more unified model for procurement and the development of a shared services approach to a number of support functions are expected to deliver significant savings and contributions to operating profit.
In spite of the strong results in 2008, the Board has decided to suspend the final dividend payment. The reduction of capital expenditure in 2009 will nonetheless allow us to complete the three major world class, low cost projects already well underway in iron ore and base metals. These will now start to come on stream in 2011 when market conditions should be more balanced. The Board believes that suspension of the dividend will preserve for shareholders these future major growth opportunities. Dividends will be resumed as soon as market conditions permit.
Against a background of rapid change, I should like to thank our employees at every level for their hard work and commitment. They have delivered an excellent financial performance during 2008 and our thanks are no less due to them as they continue to deliver in the face of the harsh and sudden impacts of the economic downturn.
Anglo American has a diversified portfolio of low cost, long life assets, with attractive growth opportunities and strong technical and project delivery skills. The Group has a compelling portfolio of projects which provides long term value creating opportunities for growth once commodity markets recover. In the interim, the Group has prudently reduced capital spending on expansion projects by around a half, predominantly through the rephasing of several major projects to better align them with the commodity cycle. A further key challenge in the short term will be to ensure we gain the maximum benefit from reductions in many input prices without undue delay, for fuel and raw materials, for example.
The Board is very supportive of the strong drive on safety that our chief executive has led and of her strong personal commitment. Although a great deal still remains to be done, the Board has been impressed by the progress made during 2008 in enhancing safety performance, including a reduction of around one-third in fatalities and one-fifth in lost time injuries. We expect to see this progress built upon in 2009. The issue has been correctly elevated to the top of management’s priorities and is being tackled in an increasingly holistic way, including through improved systems and an emphasis on leadership and behaviours. We particularly welcome the development of a tripartite approach to safety in South Africa involving both trade unions and government.
The Group also defined, for the first time, six core values – safety, care and respect, integrity, accountability, collaboration and innovation. Such values forge a closer sense of identification with the Group and its objectives amongst employees irrespective of the business units or geographies they work in. Such identification is fundamental to ensuring both that common standards are applied consistently and that we maximise our intellectual resources through effective talent management, collaboration and knowledge sharing.