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Presentation on theme: "Www.fcx.com PROVEN PERFORMANCE SHINING FUTURE Building Business Acumen Acumen Learning."— Presentation transcript:

1 PROVEN PERFORMANCE SHINING FUTURE Building Business Acumen Acumen Learning

2 How much do you know about Freeport McMoRan Corporation’s Key Success Measures? (or Key Performance Indicators (KPIs) ) Let’s find out! Important Questions

3 1 - How much Cash was on hand? $______ 2 - How much Cash was generated by Operating Activities?$______ 3 - What was our Total Revenues? $______ 4 - What was our Operating Margin? ______% 5 - What was our Net Margin? ______% 6 – What is our Copper Reserves (billion lbs.)? ______ 7 – What is our total equity ratio? ______% 8 - How much did Total Revenue change YOY?_______% 9 - How much did Net Income change YOY? _______% 10 - How much did Earnings Per Share (EPS) change YOY? _______% 11- What was FCX’s Total recordable incident rate (TRIR)?_______ For fiscal year: 2010 Pop Quiz

4 Understand the 11 key performance measures that are important to Freeport McMoRan and the Executive Team. List and describe the five business drivers all successful businesses must focus on. Teach specific components of Freeport McMoRan financial statements. Better articulate company performance & strategy. Create a personal action plan that can positively impact personal performance and company results. Learning Objectives

5 3 Acumen Means?

6 When asked by a reporter, “What makes you so great?” “I skate to where the puck… is going to be.” (Hockey Acumen!) Wayne responded by saying; “I don’t skate to where the puck is.” “The Great One” ~Wayne Gretzky~

7 …the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business. 3 Acumen Means?

8  Only 5-10% of business start-ups survive past 5 years.  16% of CEOs lose their job every year. Booz Allen Hamilton 5 th annual Study  70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007 Why do businesses fail? 6 Business can be tough!

9 Every business must focus on five business drivers.  If they do, they will be successful.  If they don’t, they’ll fail. Let’s Start a Business! 4 Business Acumen:

10 Cash is King! “Cash is more important than your mother." Al Shugart Former Seagate CEO “Cash is a company’s oxygen supply.” -Ram Charan What happens to a company who runs low on cash?

11 Sources of Cash 9 Earn it Cash from Operation Sell Assets Cash from Investing Borrow it Cash from Financing Pro: No Cost -Con: Time Pro: Immediate -Con: Reduces Assets Pro: Immediate -Con: Cost (Interest) Cash & Cash Flow

12 Can a company have too much Cash? 1)More attractive in a buy-out. 2)Low return. 3)Shareholders don’t like it. 4)May make poor decisions. 9 Cash

13 Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies. Investopedia How much cash should you have?

14 Cash 8 What is required to grow and maintain the business. Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days. M EASURES Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual) D EFINITION Definition: Cash

15 (In Millions) Cash Freeport McMoRan Corporation 9 Business Measures and Metrics Freeport McMoRan- FCX Revenues $18,982 $15,040 $17,796 $16,939 Cash Cash and Equivalents $3,738 $2,656 $872 $1,626 Cash from Operating Activities $6,273 $4,397 $3,370 $6,225 Cash and Equivalents announced July 21, 2011 = 4.4 Billion. FCX’s consolidated operating cash flows are estimated to exceed $8 Billion for the year 2011 (page 10 of Q2 press release)

16 Cash Benchmarks 9 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX BHP Billiton- June 30, Newmont Mining Corp Rio Tinto- RIO Southern Copper Corp-SCCO 2010 Revenues $18,982 $52,798 $9,540 $60,323 $5,150 Cash Cash and Equivalents $3,738 $12,456 $4,056 $9,948 $2,193 Cash as % of Revenue 19.69%23.59%42.52%16.49%42.58% Cash from Operating Activities $6,273 $17,920 $3,167 $23,530 $1,921

17 5 Business Drivers & Financial Statements Income Statement Balance Sheet Statement of Cash Flows People Assets Profit Cash Growth

18 5 Business Drivers & Financial Statements Statement of Cash Flows People Assets Profit Cash Growth

19 1.What is the basic equation for each statement? 2.What is the purpose of the statement? 3.What are the key numbers and how are they trending? 4.How can you impact each statement? The Annually Reported Financial Statements Statement of Cash Flows Statement of Income (P&L) Balance Sheet Freeport McMoRan Financial Statements

20 Statement of Cash Flow Equation: Cash from operations + Cash from investing + Cash from financing = Net Change in Cash Purpose: Cash Management Started Year  Ended Year  Net Change in Cash  ? ? 120

21 Profit 10 What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%). Operating Margin – Reflects earnings before interest and taxes. M EASURES Earnings Per Share (EPS)– Profit allocated to each outstanding share of Common stock. Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales. D EFINITION Definition: Profit

22 Every business must earn a return that is greater than the cost of using other people’s money. -Ram Charan No Margin, No Mission. -Stephen R. Covey

23 Sales (Revenues)$100100% - Production & Delivery$ 44 - Depreciation, Depletion, & Amort.$ 5 - Selling, General, & Admin. (SG&A)$ 2 - Exploration & Research$ 1 = Operating Margin$ 48 48% -Interest & Other Expense $ 3 -Taxes $ 16 = Net Income$ 29 29% -N.I. attrib. to Noncontrolling interest/Div.$ 6 = Net Income Attrib. FCX Com. Sto $ 23 23% Freeport McMoRan Averages for FY Two ways to impact PROFIT

24 Driving Profit High and Low Profit Margins S&P Average TTM:11% Who has much higher profit margins? Coca Cola33% Microsoft30% Google 29% Apple21% Why the high margins?

25 Driving Profit High and Low Profit Margins S&P Average TTM:11% Who has lower profit margins? ExxonMobil8% Wal-Mart3.8% Costco 1.7% Why the low margins?

26 Profit Freeport McMoRan Corporation 11 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX Revenues $18,982 $15,040 $17,796 $16,939 Net Income $4,273 $2,527 $(11,341) $2,769 Profit Operating Margin 47.8%43.2%-71.4%38.7% Net Margin 22.5%16.8%-63.7%16.3% Unit Cash Cost Copper (per lbs.) $0.79 $0.55 $1.16 $1.31 EPS $4.57 $2.93 $(14.86) $3.75

27 Earnings Call, July 21,2011

28 Profit Freeport McMoRan Corporation Unit net cash cost anticipated to be $1.01 in The increase is due to the impact of higher unit net cash costs at Grasberg associated with lower copper and gold volumes and higher input costs of labor, materials and energy. 11 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX Revenues $18,982 $15,040 $17,796 $16,939 Net Income $4,273 $2,527 $(11,341) $2,769 Profit Operating Margin 47.8%43.2%-71.4%38.7% Net Margin 22.5%16.8%-63.7%16.3% Unit Cash Cost Copper (per lbs.) $0.79 $0.55 $1.16 $1.31 EPS $4.57 $2.93 $(14.86) $3.75

29 Global Metals and Mining Con, February 28, 2011, presentation by Richard Adkerson

30 Q1 Earnings Call, April 20, 2011

31 Q2 Earnings Call, July 21, 2011

32 Profit Benchmarks S&P 500 Averages: Net Margin = 11% 11 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX BHP Billiton- June 30, Newmont Mining Corp Rio Tinto- RIO Southern Copper Corp-SCCO 2010 Revenues $18,982 $52,798 $9,540 $60,323 $5,150 Net Income $4,273 $12,722 $2,277 $14,324 $1,563 Profit Operating Margin 47.8%37.9%41.9%32.6%50.6% Net Margin 22.5%24.1%23.9%23.7%30.4% Unit Cash Cost Copper (per lbs.) $0.79NA $1.02NA $0.17

33 11 United Parcel Services (UPS) – Avoiding left-hand turns -92,000 trucks worldwide -Saved over 28,541,472 miles -Saved 3 million gallons of fuel -Reduced insurance premiums -Reduced maintenance frequency and costs Profit In Action

34 1.What is the basic equation for each statement? 2.What is the purpose of the statement? 3.What are the key numbers and how are they trending? 4.How can you impact each statement? The Annually Reported Financial Statements Statement of Cash Flows Statement of Income (P&L) Balance Sheet Freeport McMoRan Financial Statements

35 Net Profit Margin Net Income: 4,273 Total Revenue: ÷ 18,982 = 22.5% S&P 500 Ave. = 11% Indicates: Profitability (SG&A) SG&A: Salaries Sales commissions Benefits/Severance Rental Expense Bad debt charges Merger integration costs Professional services: Attorney fees, Accounting (Revenue = Sales) = Top Line = Bottom Line = EBIT Equation: Revenues – Expenses = Income Operating Margin Total Revenue: 18,982 Operating Expense: - 9,914 = 9,068 ÷ 18,982 = 47.76% COGS P&L 26% 69% 19% 2% 19% 16% Gross margin = 51% 59% 16% Operating margin = 48% Net profit margin = 23%

36 Impairment Charges  During fourth-quarter 2008, we evaluated the carrying values of our long-lived assets, including goodwill associated with the acquisition of Phelps Dodge, for impairment.  These evaluations resulted in the recognition of impairment charges of $10.9 billion associated with long-lived assets and $6.0 billion associated with goodwill. Refer to Notes 2 and 7 and “Critical Accounting Estimates – Asset Impairments” for further discussion of these impairment charges (pg. 65, K)

37 = Net income / Diluted # of shares

38 Statement of Income (P&L) Increase revenue by 100K 100K 44K 5K 49K 51K 18K 33K 7K 26K

39 Statement of Income (P&L) Lower costs by 100K 100K 35K 65K 22K 43K

40 Raising Revenues $100M =$26 -or- Cutting Costs by $100M =$43 What are the implications of each action? Which is better?

41 Balancing… Asset Strength Asset Utilization & i.e. cash, inventory and ratings Assets (Read from guide book p. 12)

42 Assets 12 What we have and how well we use what we have. Copper Reserves (Billion Lbs.)— total estimated proven and probable copper reserves remaining M EASURES Equity Ratio— indicates what proportion of equity and debt the company is using to finance its assets D EFINITION Definition: Assets

43 13 “In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.” “Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.” “But Sales Exploded!” “Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from… $3 million in 1909 to $25 million in 1914.” ~Daniel Gross, Forbes Greatest Business Stories Example of Profits and Assets

44 Assets Freeport McMoRan Corporation Equity Ratio = Total Equity $14,560 Total Assets $29, (In Millions) Business Measures and Metrics Freeport McMoRan-FCX Revenues $18,982 $15,040 $17,796 $16,939 Net Income $4,273 $2,527 $(11,341) $2,769 Assets Copper Reserves (Billion lbs) Equity Ratio 49.5%41.4%30.4%44.8% = =49.5% Bought Phelps Dodge

45 Global Metals and Mining Conference, February 28, 2011, presentation by Richard Adkerson

46 Assets Benchmarks 13 (In Millions) Business Measures and Metrics Freeport McMoRan-FCX BHP Billiton- June 30, Newmont Mining Corp Rio Tinto- RIO Southern Copper Corp-SCCO 2010 Revenues $18,982 $52,798 $9,540 $60,323 $5,150 Net Income $4,273 $12,722 $2,277 $14,324 $1,563 Assets Copper Reserves (Billion lbs) Equity Ratio 49.5%55.5%61.2%58.1%48.2%

47 Class Discussion (notes on page 13)  Best practices currently employed by companies, including ours, to improve asset strength and utilization:  Increase revenues.  Lower costs.  Getting more done with fewer employees.  Reducing inventory levels to increase inventory turnover.  Spending only on capital (equipment) upgrades that will provide a return.

48 1.What is the basic equation for each statement? 2.What is the purpose of the statement? 3.What are the key numbers and how are they trending? 4.How can you impact each statement? The Annually Reported Financial Statements Statement of Income (P&L) Balance Sheet Statement of Cash Flows Freeport McMoRan Financial Statements

49 Becomes Cash < 1 year  Most Liquid  Least Liquid  Due First  Due Last Due in < 1 year Balance Equation: Assets = Liabilities + Equity Equity Position: 50% Snapshot in time Indicates: Financial (asset) Strength Current Ratio = 2.6

50 Balance Sheet Do we have a strong Balance Sheet?

51 Good cash, current ratio and equity ratio Q2 Earnings Call, July 21, 2011

52 Growth 14 The ability to increase year over year, quarter over quarter, and/or month over month. Revenue Growth M EASURES EPS Growth-Earnings per share increase Net Income Growth “In today’s business world, no growth means lagging behind in a world that grows every day…” “Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.” D EFINITION Definition: Growth

53 Best & brightest leave first. Productivity goes down. Morale goes down. Costs are cut, which limits ability to grow, company becomes less profitable. Studies Show: It usually takes 4 or 5 years for the company to recover. 15 Business in Rapid Decline…

54 Attracts/Retains the best & brightest! Productivity goes up = more profit = more cash = more ability to grow! Morale is high. You have the ability to grow in your career! Growth gets more time & attention than any of the 5 elements in a public company. 15 Business in Rapid Growth…

55 Growth Freeport McMoRan Corporation 15 (In Millions) Business Measures and Metrics Freeport McMoRan-FCX Revenues $18,982 $15,040 $17,796 $16,939 Net Income $4,273 $2,527 $(11,341) $2,769 Growth Revenue Growth 26.2%-15.5%5.1%193.0% Net Income Growth 69.1%122.3%-509.6%98.4% EPS Growth 56.0%119.7%-496.3%11.8% Recorded Reserve Growth Copper 15.6%2.2%9.4%72.2%

56 Q2 Earnings Call, July 21, 2011

57 Q1 Earnings Call, July 21, 2011

58 Sales grew because metal prices increased even though volumes were down.

59 Sales volumes 2010 and estimated for 2011

60 Growth Benchmarks 15 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX BHP Billiton- June 30, Newmont Mining Corp Rio Tinto- RIO Southern Copper Corp-SCCO 2010 Revenues $18,982 $52,798 $9,540 $60,323 $5,150 Net Income $4,273 $12,722 $2,277 $14,324 $1,563 Growth Revenue Growth 26.2%5.2%23.8%37.0%37.9% Net Income Growth 69.1%116.5%75.6%194.0%67.2% EPS Growth 56.0%117.1%71.1%164.0%67.9% Recorded Reserve Growth Copper 15.6%-2.2%3.3%6.1%7.8%

61  At your table, discuss how you individually impact Growth.  Capture your ideas on page 15 in the participant guide.  Be prepared to share one of your ideas with the class. 15 How can you personally impact Growth?

62 People 16 -The External Customer, Vendor/Re- seller, or Internal Customer that has the ability to impact the success of the business.. -Employees Total Recordable Incident Rate (TRIR)- is a measure for the total number of incidents per 200,000 hours worked. M EASURES D EFINITION Definition: People

63 17 What is more important than meeting customer expectations? Exceeding? Anticipating Customer Needs & Expectations! “If I would have asked my customer what they wanted, they would have said a faster horse!” ~Henry Ford People

64 17 What companies have failed to anticipate customer expectations? What were the results? – Unprepared for recession and required government bailout money. Ford secured line of credit prior and retained full ownership. – decided to move to digital product line. Polaroid did not and is no longer a serious competitor. – In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world. – Did not move to a digital music player and lost a significant market share to innovative companies like Apple and Motorola. GM/Ford Kodak IBM Sony Failing to Anticipate customer needs/expectation!

65 People Freeport McMoRan Corporation 17 (In Millions) Business Measures and Metrics Freeport McMoRan-FCX Revenues $18,982 $15,040 $17,796 $16,939 Net Income $4,273 $2,527 $(11,341) $2,769 People Total Recordable Incident Rate (TRIR-(Per 200K Man Hours Worked) Mine Safety & Health Admin TRIR Average: 2010= = = = 3.30

66 People Benchmarks 17 (In Millions) Business Measures and Metrics Freeport McMoRan- FCX BHP Billiton-June 30, Newmont Mining Corp Rio Tinto- RIO Southern Copper Corp-SCCO 2010 Revenues $18,982 $52,798 $9,540 $60,323 $5,150 Net Income $4,273 $12,722 $2,277 $14,324 $1,563 People Total Recordable Incident Rate (Per 200K Man Hours Worked)

67 What are your best practices in anticipating CUSTOMERS needs? (Capture ideas on page 17)  Know your business and how you impact results!  Develop formal processes for listening to customers, both internal and external.  A quarterly meeting with your boss…ask, how am I doing? What could I do to improve?

68 Business Drivers (Page 18) Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees

69 ,068 3, ,982

70 9,068 14,560 29,386 18,982 15,040 4,273 2,527 3,738 6,273 18, ,982 4,273 18,

71 Freeport McMoRan Corporation’ Key Success Measures 1 ½ 0 SCORING: Right answer = 1 point Somewhat close = ½ point (within: $2B, $2, 2%) Missed it by a ways = 0 point 35

72 5 Business Driver Review (Pages 8-17) Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees

73 1) Assign one of the business drivers to each person at your table. Review and Teaching (page 30) 2) Take a few minutes to answer the questions below: How would you describe this business driver? Why is it important to our organization? How is it measured? How can I impact this business driver in my role? 3) Review with your group the answers you found.

74 When you think of a company rich in Cash, who comes to mind? (Page 20)

75 What is the Purpose of the Annual Report?  General Communication  Marketing  Compliance Demystifying the Annual Report (page 21)

76  Which of the 5 “drivers” does your CEO & Chairman emphasize? Why? As table groups, grade Mr. Moffett’s and Mr. Adkerson’s top 2 focus areas.  What other key initiatives are also being talked about?  Was this a good year or bad year? How can you tell? Getting to Know Your Company

77 Finding our performance around the 5 Business Drivers Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees

78 External Factors (page 40) How does the situation affect: Cash Profit Assets People Growth Heads Up!

79 Google And Reuters

80 Competitor Reports BHP Billiton Newmont Mining Rio Tinto Southern Cooper Keep your friends close, and your enemies closer. --Lao Tzu

81 Finding Competitors Performance Around: Cash -On hand -Generation Assets -Strength -Utilization Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees

82 Use these sources: 1) CEO letter 2) Financial analysis (fill out the NTF) 3) Recent quarterly earnings release 4) One year stock performance To answer these questions on page 36:  Was this a good year or bad year? How can you tell?  Which of the 5 business drivers are most important to them? Why?  What does this company do that you were not aware of? Getting to Know a Company (pages 36)

83 Credit Crisis Who is involved? U.S. Government Federal Reserve Home Builders Home Buyers Mortgage Companies FNMA & FHLMC Rating Agencies Banks, Insur. Co’s Pushing more loans. Little over-sight. Aggressive rate cuts after 9/11 to spur spending. Buying more home than they can afford. increase supply of homes to meet demand. Aggressive Sub- prime lending. Did not rate sub- prime loan risk well. Over leveraged with implied government backing. Over leveraged. Did not understand sub- prime risk. What does this mean for FCX?

84 The Role of the Stock Market 1) What role does the stock market play? 2) Who cares about your stock price and why? a. Investors b. Analysts

85 Analyst Recommendations September 19, 2011

86 The Role of the Stock Market 1) What role does the stock market play? 2) Who cares about your stock price and why? a. Investors b. Analysts c. Your CEO d. Employees 3) What are the benefits of a higher stock price?

87 6 Benefits of a Higher Stock Price: (Page 41) 1) Treasury stock is worth more. 2) Secondary offering brings more cash. 3) Better credit ratings = more access to cash at a cheaper rate. 4) More acquisition power. 5) Can attract talented people. 6) More expensive in a buy-out.

88 Market Cap = shares outstanding X stock price Element FCXBHPNEMRIOSCCO Market Cap. 38 Billion166 Billion33 Billion106 Billion26 Billion

89 The P/E Ratio-FCX (Page 42, 43) P rice (of one share of stock) E arnings Per Share (for last 12 months) Price $ EPS $ 5.86 = 6.86 P/E ratio

90 P/E Ratios Element FCXBHPNEMRIOSCCO P/E Ratio “The P/E ratio tells you what people who have a dispassionate view of your company think of its future ability to make money. It reveals how much of their money they are willing to bet on your success in the quarters and years to come.” Ram Charan

91 Freeport McMoRan Stock Chart

92 Boosting Stock Price In December 2010, our Board of Directors authorized a $0.50 per share supplemental common stock dividend paid on December 30, 2010, and a two-for-one common stock split effected on February 1, 2011 (Page K)

93 Freeport McMoRan and S&P 500

94 Freeport McMoRan and Benchmark Companies

95 CEO Urgency Continuum ( Page 49) URGENT NEAR TERM LONG TERM CASH PROFIT ASSETS GROWTH PEOPLE

96 Retaining Content over Time Time Content Retention Review Apply Teach 15% 52

97  What new insights did you gain (today) as a result of attending?  How will this material impact your daily activities? Action Plan: List 1-2 Actions You Will Commit to do. Review and Action Plan (Page 52 & 53)

98 Chances of the idea being incorporated into their life is... When a Person Says … *Based on a 1993 Brigham Young University Study Changing Behavior “That’s a good idea”…10% “I’ll do it!” and commits...25% Says when they’ll do it… 40% Plans how to do it… 50% Commits to another…60% Sets a future specific appointment with the person they committed to... 95% Good Management Technique!

99 Find a Partner now and: 1.Set up a specific date and time in 30 days to report your progress on your action plan. 2.Exchange s 3.Exchange phone numbers 4.Decide who will initiate the call 5.Determine a back-up plan 6.Transfer this information to your planner or PDA now. 53 Accountability Conversations

100 1.7 days:Teach one of the principals learned in class today, to someone in your department. 2.7 days: Discuss your action items with your manager in the next 7 days days: Read the first 90 pages of: “What The CEO Wants You to Know“ 4.30 days: Get with your class partner and give an account of your progress on your action item(s). Start now:  Build and practice your new business acumen skills.  When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People… Post Course Action Items:

101 * nasdaq.com* finance.google.com * reuters.com* hoovers.com * yahoo.com* smartmoney.com Glossary: page 58 Where to Find Information (page 55)

102 Understand the 11 key performance measures that are important to Freeport McMoRan and the Executive Team. List and describe the five business drivers all successful businesses must focus on. Teach specific components of Freeport McMoRan financial statements. Better articulate company performance & strategy. Create a personal action plan that can positively impact personal performance and company results. Learning Objectives


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