burmah castrol bp strategy presentation

8/3/2019 Burmah Castrol BP Strategy Presentation

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Mergers and acquisitions Burmah Castrol

Burmah Castrol strategy presentation - London, March 14, 2000

Disclaimer

The Directors of BP Amoco p.l.c. accept responsibility for the information contained in thisdocument and, to the best of their knowledge and belief (having taken all reasonable care toensure that such is the case), such information is in accordance with the facts and does not omitanything likely to affect the import of such information. However, in respect of informationcompiled from the 1999 preliminary results for Burmah-Castrol PLC, the Directors of BP Amocop.l.c. take responsibility only for the correctness and fairness of its reproduction andpresentation.

The text of this presentation and the associated slides should be read in conjunction with eachother and with the announcement of the offer dated 14 March 2000 by BP Amoco p.l.c. andBurmah Castrol PLC.

This presentation and the associated slides contain statements, particularly those regardingcosts savings, disposals, dividends, earnings, growth, margins, performance, strategy,synergies and volumes, which are or may be forward looking statements and actual results maydiffer materially from those expressed or implied in such statements.

Neither the text of this presentation, nor the associated slides, constitute an offer or invitationto purchase any securities or a solicitation of an offer to buy any securities, pursuant to theoffer or otherwise.

The offer will not be made, directly or indirectly, in or into Canada, Australia, New Zealand orJapan. The offer will not be capable of acceptance from within Canada, Australia, New Zealandor Japan and doing so may render invalid any purported acceptance.

The availability of the offer to Burmah Castrol PLC shareholders who are not resident in theUnited Kingdom may be affected by the laws of the relevant jurisdictions. Burmah Castrol PLCshareholders who are not resident in the United Kingdom should inform themselves about and

observe any applicable requirements.

Sources and Bases of Information The information in slides 18, 20, 22, 24, 26, 28, 30, 31 is derived from internal sources.

Burmah Castrol deal strategy presentation introduction by Sir JohnBrowne

Ladies and Gentlemen

Good morning and welcome. Thank you for joining us at such short notice.

Can I also welcome all the people who are watching this on our webcast - including many

members of staff.

As you'll be aware BP Amoco have announced today an agreed all cash offer for Burmah Castrolat a price of 16.75 a share, which represents a premium of around 60 per cent over theaverage price of the last three months .. and a total cost of 3 bn.

(The offer represents a premium of 74% over the closing price per share of 965p of BurmahCastrol plc shares on 10 March 2000.)

Let me first introduce Jonathan Fry, the Chairman of Burmah Castrol and David Baldry, one ofour Group Vice Presidents who will be taking you through the details of the transaction. Weintend to appoint David as the head of the new Castrol division which will cover all BP Amoco'sactivities in lubricants.

For BP this represents a significant further step in the development of the downstream strategysince it became obvious 15 months or so ago that the BP Mobil joint venture would come to anend.


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It gives us a tremendous opportunity to deliver additional growth in a business principallyfocused towards the consumer.

Castrol is one of the world's great brands.

Castrol brands have a global market share of 5 per cent in the lubricants business and are aleading brand in over 50 countries around the world.

This acquisition also brings us some great people - people who have developed the Castrolbrand and created that leading position. We believe they will add significantly to ourmanagement and our base of skills and knowledge.

As the announcement makes clear, we intend to dispose of Burmah Castrol Chemicals business.

In all the other aspects of the business - distribution, supply, administration and overheads wesee significant synergies and we expect to deliver cost savings of at least $ 260 m pre tax perannum. The costs of implementation are expected to be around $390 million , which we willtake as a charge during 2000, and we expect full payback within 2 to 3 years.

The scale of the potential synergies is important but they are not the main driver behind thistransaction.

The attraction is growth.

Castrol has a record of growing its sales faster than the market, particularly in emergingeconomies such as India, China and Latin America.

The combination gives us access to millions of additional customers world-wide and access tosome of those markets where we currently have a limited presence. It will make Castrolproducts available to our own extensive customer base world-wide, including our commercialand industrial users. In terms of geography the fit is excellent.

We believe that the value which we're putting on the company, including the premium, is fullyjustified by the synergies.

We're buying an excellent business which gives us a platform for growth and which fitsextremely well with our conception of the evolving market - the shift to gas, to clean fuels andto high quality oil products and services.

We see this transaction as one further step in a pattern of growth for the future, and we'll betalking about all that in more detail over the next few months.

As you will be well aware, BP and Burmah Castrol have had a long and close history. It wasafter all the Burmah Oil company which largely financed William Knox D'Arcy when he went toexplore in Persia 95 years ago. We've had many links since then and a very good workingrelationship ... so I'm delighted that we've been able to reach the agreement announcedtoday.


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Platform for growth

Good morning, Ladies & Gentlemen. I am delighted to have this opportunity as Chief ExecutiveOfficer "to be" of our new global Lubricant organisation to build on what John and Jonathanhave already said about this tremendous platform for growth, benefiting from great brands withgreat people within a performance driven culture - a real opportunity to drive top line revenuesright across the existing BPAmoco Marketing organisation.

This deal combines Castrol, as one of the world's best lubricants marketing companies, with BPAmoco's proven track record in performance management. The deal also supports theimplementation of key aspects of our Downstream strategy which, in addition to earningsgrowth, are to expand our customer base, broaden our customer offer and optimise ourmanufacturing capacity.

What then does all this amount to?


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Brand and marketing expertise

It means, as John said, that following this combination, we will have a company with a leadingbrand , and with universally acknowledged marketing expertise, which is also competitivelydistinctive. We will have real global reach and scale and the means to accelerate our entry intoexciting new growth territories. And all this will be over and above the very significant costsynergies which themselves underpin this transaction.

I will now go into further detail around each of these three key strategic drivers and thepowerful commercial logic for this combination, beginning with Brand and marketing expertise.

Castrol have today one of the best global lubricants brands which is used by a significantnumber of customers. Let me be quite clear, Castrol will become the flagship brand of the newlyformed global lubricants division, continuing to drive customer-focussed programmes around

the world.


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Castrol's brand rests on far more than its well-known advertising, and its involvement in suchevents as Formula One. From my standpoint, it symbolises marketing excellence based on apassion for meeting customer needs. Castrol also have a formidable in-house R&D capability toprovide technological solutions to their customers. Perhaps the best example is their success indeveloping their top-of-the-range synthetic lubricant products.

The strategic marketing skills which Castrol brings to the new Division will be enhanced by ourability in future to offer a full range of products to both our customer bases - marketing (for

example) BP Amoco fuel to Castrol customers, and Castrol lubricants to BP Amoco customers.One exciting early opportunity will be to utilise our 28,000 service stations around the world, asa shop window for Castrol's full product range.

And looking to the future, we also expect to form innovative marketing approaches, providingwider solutions for our customers through service-orientated offers and E-commerce activities.


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Both Castrol and BP Amoco have, over many years, enjoyed strong customer relationships,which have underpinned their success. As our customers become increasingly global in nature(and thus in their procurement habits), we can now be all the more flexible in our efforts tosupport them wherever they need us.

BP Amoco, for example, has over the past year developed a close working relationship withGeneral Motors and Ford, while Castrol has announced ground-breaking alliances with both

BMW and Hyundai. The new lubricant business will be able to benefit from these global alliancesas well as other commercial and dealer relationships.

And finally under this brand and marketing section, one of the truly exciting aspects of this dealis the major infusion of Castrol marketing and sales people into the wider BP Amocoorganisation. To put a figure on this, we shall gain some 4,000 additional marketing and salesstaff from Castrol. Coupled with our own customer-facing staff this will be a truly world-classmarketing team.


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Global reach

The second strategic driver - and perhaps the most striking - is the global fit of the twoenterprises both in a sector and in a geographic sense.

First, I'll show you our global position today as BP Amoco before any combination with Castrol.Although we have some significant strengths in parts of the Southern Hemisphere, with amoderate position in Europe, we are under-represented in lubricants in the Americas and otherkey growth areas.


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So let's see what impact the combination has in Europe. BP Amoco have recently agreed on theextraction of its share of the Lubricants Joint Venture with Mobil. The outcome of thattransaction will leave us, firstly, with some 6 per cent of the European market, and in fourthposition overall from a market share perspective, and secondly, with a product slate biasedtowards the commercial automotive sector.


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The new enterprise takes us to number two in Europe, with an overall market share of some 13per cent and a far more balanced sector portfolio.

Looking again at the world map, with Europe now reflecting the newly combined 13% market

share, let's move across the Atlantic and look at North America where neither BP nor Amoco hada material lubricants position.


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Conversely, Castrol have had great success in developing their position in the US and Canadaover the past decade. And from now on our company will be one of the leading US coast-to-coast marketers of lubricants, matching our already strong fuels position.

Looking at the rest of the world, the Castrol brand is present in more than 50 countries and thisnew combination enables us to achieve critical mass in many key markets, but perhaps, mostexcitingly, it is also present in high growth areas such as India, China and parts of LatinAmerica.


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Looking at the complete global picture, post transaction, it is evident that we will now enjoy asignificant presence on every continent. And importantly, if I were to show you similarcomparisons across the different sectors of the lubricants business, the same glove-like fitwould be evident. As lubricants represents a relatively low-cost market entry vehicle, our newCastrol business will create many new growth options for the wider downstream organisation toconsider.

So, be in no doubt, this new combination offers up substantial opportunities for further top linegrowth. [And you can expect to hear more about our plans once we have had the time todevelop them in more detail.]


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Cost synergies

As I am sure you are aware, no BP Amoco presentation would be complete without talking aboutcost synergies and these are indeed significant.

The savings are driven chiefly by the elimination of duplication in the areas of blend plants,distribution and back office support services.

We are confident we can achieve cost synergies of some 260 million dollars per annum pre-taxby the year 2003. This equates to a 7 per cent reduction in the combined lubricants cost base.50 per cent of these synergies will come from a reduction in staff - representing some 1,700jobs worldwide. All this has to be set against the total cost of restructuring which we estimatewill amount to some 390 million dollars pre-tax. And in terms of shareholder value, thetransaction will be accretive to pro forma earnings-per-share in 2001.

(This should not be interpreted to mean that earnings per share in 2001 will necessarily be greater than those for2000.)


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Summary

So that summarises the principal reasons why we believe this deal is so compelling.

I have described the nature and commercial logic of this very exciting transaction which sees aunion of marketing and performance excellence. It brings with it numerous new growthopportunities far in excess of what each of us could have achieved on our own, which togetherwith the attractive synergies, will drive our earnings growth into the future.

Personally, I believe this is the most exciting marketing opportunity I have seen in my careerand I am greatly looking forward to being part of this world class team.

burmah castrol bp strategy presentation

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