IRON ORE BRAZIL CHANGE IN MINDSET: LOCAL PROCUREMENT NOT A NECESSARY COST BUT A DRIVER OF STRATEGIC BUSINESS VALUE

Transcription

1 IRON ORE BRAZIL CHANGE IN MINDSET: LOCAL PROCUREMENT NOT A NECESSARY COST BUT A DRIVER OF STRATEGIC BUSINESS VALUE January 2016

2 IRON ORE BRAZIL AGENDA Anglo American Group Approach to Local Procurement PROMOVA Operating model Current strategy Promova s main results

3 ANGLO AMERICAN SOCIO-ECONOMIC DEVELOPMENT STRATEGY Our view on our most effective SED contribution Leveraging our core business is an efficient way to deliver benefits 1. Leveraging our core business Programmes Local Procurement Local Employment Sharing Skills / Employee Volunteering External Capacity Development Enterprise Development Functions Supply Chain + GSA Human Resources + GSA GSA 2. Focus on productivity of public and private sectors Enterprise development Employee volunteering Social investment 3. Prioritising delivery via partnerships NGOs: Development finance institutions and foundations: and leads to a more effective and sustainable developmental contribution. Synergies from Mine Infrastructure Social Investment Projects / Logistics / BD GSA + others (eg S&SD) Outcome: Greater Impact Employee volunteering Outcome: Higher Effectiveness Corporate partners: Outcome: Higher Efficiency 3

4 Group Approach to Local Procurement PROMOVA was designed and implemented in 2012 following the ten steps in the Anglo American Group toolkit for Local Procurement

5 WHAT IS THE PROMOVA PROGRAMME? General Goal Develop small and medium size local suppliers, in a responsible and sustainable way, building a competitive supply chain and promoting the economic and social development to the communities where we operate Focus Local procurement increase Socio-economic development Operational efficiency Stakeholder Engagement Increase operational efficiency and improve supply chain performance Lower costs over the life-cycle of purchasing - long term Contribute to our social license to operate Reduce transport and logistical costs 5

6 OPERATING MODEL PROMOVA builds on four key areas supporting two strategic pillars: Operating Model Local Suppliers Development Program Business Development Financing Professional qualification Communication / Stakeholder management FOMENTO PROMOTION ATRAÇÃOATTRACTION Develop local companies from several sectors already established in the area of influence Política de Desenvolvimento de Fornecedores Attract businesses and segments of industry and commerce to the area of influence MANAGEMENT

7 OPERATING MODEL - detailed Each key area has specific actions to be delivered by a highly competent team that is locally base and understands the local context Business Development Local Procurement Development Program Financing Professional qualification Communication / Stakeholder management Opportunities from the operation demand Assistance to urgent demands Anticipation of receivable values Classroom qualification E-learning Program dissemination actions (internal and external media) Introducing local suppliers into large suppliers Technological training and innovation Programme relationship channel Segments with the possibility of expansion Business round table Credit to grow Support to the entrepreneur Internship program Spontaneous media GOVERNANCE AND MANAGEMENT MODEL

8 COVERAGE AREA 2ª Phase: Port São João da Barra Campos dos Goytacazes 1ª Phase: Mine Conceição do Mato Dentro Alvorada de Minas Dom Joaquim Serro

9 CHANGE IN MIND-SET: CAN A COST BE TURN INTO A SAVING? $6000 Chile ED Jobs Support Cost Curve PROMOVA Peru ED Brazil ED SA ED 2 SA ED 1 Peer Peru SA ED 3 Peer Africa Note: The vertical axis takes the overall cost of the ED/LP programme and divides it by the total number of jobs supported The horizontal axis shows how many jobs have been supported during 2014 for each of the programmes. Key findings The ED and LP programmes implemented across Anglo American vary significant in relation to cost efficiency. This reflects local specific characteristics (e.g. strong regulatory intervention) but also programme design. Promova in Brazil blends the best of our global approach to LP and delivery partners (Technoserve) to be the most cost-effective LP programme in the group. Promova is currently below the cost curve as it delivers savings and not cost to the operation. 9

10 Savings CHANGE IN MIND-SET: FOCUS ON VALUE We asked: what if PROMOVA could deliver net savings to our mine and be a key driver of growth beyond Anglo American? Year 2 Year 3 Year 4 Time The business case should start here Total net savings logistics and supply cost reduction Reduction in stock levels (WiC) Process optimization Local labor hiring Cost of setting up the LP programme 10

11 ACCESS TO CAPITAL PARTNERSHIPS WITH LOCAL BANKS The initiative provides short-term working capital to suppliers via invoice discounting that has been design to fit local SME characteristics and leverage Anglo American s risk profile Current Product Eligibility to 100% of the Anglo American suppliers For each transaction Anglo American gets a rebate from the bank 100% of the revenue obtained is recycled into Promova Visibility of the invoice status by suppliers at the Portal Low operating effort Achievements Consolidated process since 2012 Anticipated amount US$ 92MM Rebate 1 implemented in September 2015 Financial income: Current: US$ 19K (Sep Dec/15) Expected: US$80k, 2016 Rapid Local Economic Development Risk mitigation Cost Reduction Process optimization 1 discount, bonus, deduction, returning a value (R$) Characterized as financial income

12 ACCESS TO MARKETS - PARTNERSHIPS WITH SUPPLIERS Local diagnosis Report - 6 companies 1 st stage 13 th mar Komatsu 2 st stage 17 th e 18 th apr DCML 3 rd stage 16 th e 17 th dec DCML 4 producers approved 15% losses

13 CHANGE IN MIND-SET: CURRENT STRATEGY Program s actions in key focus areas for operational efficiency OPERATIONAL EFFICIENCY Compliance with Operation Cost Reduction Strategic Partnerships Where to act? Reduced service time (ex.: SLA, OTIF) Reducing mobilization time logistics and supply cost reduction Reduction in stock levels (WiC) Strengthening and integrating the production chain (2nd tier) Investment incentive Mitigation stock out (redundancy) Process optimization Industry sectors approach Increase quality services and delivery Local labor hiring SMEs insertion in the chain How? Local development Attracting companies to the region of influence Training and professional qualification Increased technology and process improvement Expansion and creation of new partnerships (ex.: KOMATSU, MICHELIN and SAPORE) Business rounds Increase in quality Increased competitiveness Strengthening and encouraging entrepreneurship 13

14 SUCCESS CASE Laundry Accommodation Mechanical workshops Context Limited structure and few customers 2 employees Revenues: R$ 75K (2011) Insufficient local supply (rooms gap) Low quality Absence of technical knowledge Outdated equipment and tools High gap of local workshops with diesel engine expertise What was done Compliance with legislation Technical and managerial knowledge Long-term growth plan Demand shared with local entrepreneurs Letter of intent for the construction of new rooms signed (guaranteed demand) Apartment standard and services defined In company training with Komatsu (Diesel Engine introductory, turbines and nozzles) Consultancies On the job trainings at DCML Results Technical Approval Diversification of the customer portfolio Contract with AA for 24 months 8 employees Revenues: R$ 550 K (2014) 7 local lodges enlarged New hotel chain attraction Increase of 135 rooms 2 qualified workshops 40% of increase in service volume Local workshops capable to meet demands of the Minas-Rio contractors

15 PROMOVA s RESULTS - SNAPSHOT Local Procurement Consolidated IOB Local Procurement Influenced by PROMOVA US$ MM Dec/ TOTAL US$ 250 MM 5,4% Local procurement US$ MM Dec/ x TOTAL US$ 62 MM 16% GDP impact (4 municipalities) 140 Local Suppliers (CMD DJQ ALV SER SJB CGY) Finalized purchase orders Anticipation of receivable values 3,508 Purchase Orders with local suppliers 87 Contracts signed 140 Local Supppliers US$ MM Nov/15 US$ 92MM anticipated 1,632 transactions 102 suppliers Entrepreneurship Supplier Park 235 entrepreneurs benefited 800 job created US$ 300K mobilized funding 800 Sustained jobs 13% Local GDP reached and benefited 15 selected categories Generation of 868 direct and indirect jobs local GDP Impact by 4,6% 2,5MM/year in tax collection Potential

16 SYSTEMATIC APPROACH KEY RESULTS Each programme has been designed to allow the other to work more effectively. This reduces costs, allows better partnerships to be built and increases the socio-economic impact Market Support System Local Procurement Each dollar invested in PROMOVA, allows up to US25 to be supplied by local SMEs Enterprise Development 800 jobs supported in rural and urban businesses Workforce Development ~280 positions and potentially save up to 30% of the cost via a partnership with SENAI. 16

17 CHALLENGES 1. Enable local entrepreneurs to become successful AA suppliers 2. Generate long lasting and sustainable benefits for both Community and Operations 3. Control the local supplier dependency level over the mining value chain

18 THANK YOU 18

19 2015 KPI s Local Procurement Influenced by Promova 2015 US$ MM Purchasing volume in contract US$ 17MM Mine Port Impact GDP Mine 20,48% 7% 93% Contract Spot 2015 YTD Q Q2 Q3 Q4 5 YTD Local OTIF - % 14 Suppliers 5% 7% 21% 15% CAR RENTAL PASSENGER TRANSPORT FAGUNDES ACCOMODATION KOMATSU Categories x Top Suppliers AGENCY 30% 28% UNIVALE 26% FAGUNDES 22% KOMATSU 5% SANTA INES 2% SERRA VELHA 2% 24% ALTO DO BAU 1% GAC SERVICOS 1% CMDNET 1% QUILOMBO 1% 91% 42 Jan 10 Feb 70 Mar 38 Apr 85 May 51 Local on going contracts 15 Jun Local suppliers contracted Jul Aug Sep Oct Nov Dec YTD Typology of hiring process 98% Normal 2015 YTD