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Group chief executive's review | |
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  Dear Shareholder, When I wrote to you last time, my team and I had as many questions as answers about the forthcoming year. Would our strategy endure a weak global economy, impending war in Iraq, continuing uncertainty over terrorism, increasingly complex regulation and a groundswell of anti-corporate sentiment? How would our competitors respond to the challenging position we had worked so hard to achieve? I am pleased to say that BP rose convincingly to all these challenges. The group turned in one of the strongest performances in its history. We closed the year more secure in our strategic direction, more steadfast in our beliefs and more confident in our potential to deliver superior long-run total shareholder returns. With the retirement of Rodney Chase, deputy group chief executive, and John Buchanan, chief financial officer, we moved new people into leadership positions. Dick Olver, Byron Grote and David Allen, long-term colleagues, have each in their new positions added considerable experience and judgement. Tony Hayward, John Manzoni, Ralph Alexander and Iain Conn, who are now in charge of our four business segments, have added to the strength of our team. We recognize that in our people we possess the talent, creativity and commitment to deliver consistent and competitive returns and turn our strategy into reality. I offer my sincere thanks and appreciation to all our staff around the world. Performance in perspective In 2003, we were able to report a strong result, and to invest significantly for the future. Our result was $12.4 billion, up from $8.7 billion in 2002. This was achieved against the backdrop of stronger oil and gas prices, which were higher than most had forecast. During the year, underlying oil demand increased as the world moved out of recession and the economic boom in China continued. OPEC maintained a managed supply throughout the year, despite well-publicized disruptions in Venezuela and Iraq, and inventories remained low. Our improved result was founded on cash from our operations, which rose 12% to $21.7 billion. This strong cash flow gave us the flexibility to use $2.5 billion to strengthen our pension funds. Excluding this pension funding, BP's operating cash flow rose to a total of 25% above 2002 levels. In addition, we divested $6.4 billion of assets. We used this cash flow to invest $14.0 billion in organic capital expenditure, to acquire $2.6 billion of new assets, to pay dividends of $5.7 billion and to buy back $2 billion of our own shares, while maintaining our year-end level of net debt at the same level as year-end 2002. All these are clear signals of a strong year and a healthy group. In addition, pro forma return on average capital employed improved year-on-year from 13% to 16% through a disciplined focus on our revenue-generating assets. The safety of our people remains of prime importance and our overall safety performance continued to improve. The frequency of serious injury among employees and contractors, as measured by days away from work cases, has decreased over a five-year period, from 0.25 in 1999 to 0.10 in 2003. However, individual incidents led to a large number of fatalities among employees and contractors, with 20 people losing their lives, mostly as a result of transport-related incidents. We deeply regret these fatalities and, in response, are tightening our standards on driving safety throughout the group. Evidence of progress These annual results must also be viewed in the context of our long-term strategy. In 2003, we took steps to strengthen the competitiveness of our portfolio of assets, markets and businesses. The significant milestones were:
Strategy in context Ten or so years ago, it might have been easy for BP to accept the status quo, to hold on to our heritage, accepting our position among middle-tier oil companies and offering shareholder returns with average prospects for long-term growth. Fortunately, BP is not a company whose character and aspirations allow it to accept the status quo. Indeed, recent history points to many examples where BP has acted as 'first mover' to create distinctive asset and market positions. We saw greater opportunity for sustained growth in shareholder value by attaining global scale, with all the opportunities and efficiencies that such a position brings. Over the last few years, we have continued to transform our exploration and production segment in the drive for secure and competitive returns. While continuing to seek maximum productivity from our existing base of oil and gas fields, we have also created a balanced portfolio of six new material profit centres: the deepwater Gulf of Mexico, Trinidad, Azerbaijan, Angola, gas in Asia Pacific and, most recently, Russia. At the same time, we have reinvested significant cash into our customer-facing businesses to build a strong second leg for the group. The future In the process of becoming a major oil and gas company through mergers and acquisitions, we have established common values and processes throughout the group so that we can act with greater alignment. This allows us to harness the restless energy and imagination of our people within a management framework that has clarity of central strategic purpose and unified control. I believe this framework will drive operational excellence and competitive shareholder returns over time. As we realize the possibilities before us, we also recognize the challenges they bring. Good performance year by year is not enough. We have to demonstrate that we can be a sustainably successful company in the long term, making a meaningful contribution to a sustainable world. We are continuing to develop practical responses to the critical issue of climate change. We are working to develop cleaner, more efficient fuels for our customers. We continue to strive to ensure that our activities not only benefit our shareholders but create mutual advantage for our customers, suppliers, partners and communities wherever we operate. To do that, we must be guided by our values, being inclusive and meritocratic, having high ethical standards, striving for transparency and recognizing our impact on society. Most importantly, we must continue to renew our human capabilities by attracting, retaining and developing some of the world's best people. We have come a long way, but there is much more to do. We are guided by a clear strategy, with a talented and committed workforce. The future is full of excitement and the future, as always, has just begun.  The Lord Browne of Madingley Group Chief Executive 9 February 2004 |
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