Wrap Text
Annual Financial Report 2014
BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
Share code: BIL
ISIN: GB0000566504
Issued by: BHP Billiton Plc
Date: 25 September 2014
To: London Stock Exchange
JSE Limited
For Release: Immediately
Contact: Elizabeth Hobley +44 (0) 20 7802 4054
BHP Billiton Plc – Annual Financial Report 2014
UK Listing Authority Submissions
The following documents have today been submitted to the National Storage Mechanism
and will shortly be available for inspection at: www.morningstar.co.uk/uk/NSM
- Annual Report 2014
www.bhpbilliton.com/home/investors/reports/Documents/2014/BHPBillitonAn
nualReport2014.pdf
- Summary Review 2014
www.bhpbilliton.com/home/investors/reports/Documents/2014/BHPBillitonSu
mmaryReview2014.pdf
- Sustainability Report 2014
www.bhpbilliton.com/home/society/reports/Documents/2014/BHPBillitonSusta
inabilityReport2014.pdf
- Form 20-F
www.bhpbilliton.com/home/investors/reports/Documents/2014/BHPBillitonFor
m20F2014.pdf
- Notice of Annual General Meeting 2014 - BHP Billiton Plc
www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2014/BHPB
illitonNoticeOfMeetingPlc2014.pdf
- Proxy Form (UK Principal Register)
- Proxy Form (South Africa Branch Register)
The documents (with the exception of the Proxy Forms) may also be accessed via
BHP Billiton’s website - www.bhpbilliton.com - or using the web links above.
Additional Information
The following information is extracted from the Annual Report 2014 (page references
are to pages in the Annual Report) and should be read in conjunction with BHP
Billiton’s Final Results announcement issued on 19 August 2014. Both documents
can be found at www.bhpbilliton.com and together, constitute the material required
by DTR 6.3.5 to be communicated to the media in unedited full text through a
Regulatory Information Service. This material is not a substitute for reading the
Annual Report 2014 in full.
1. Principal risks and uncertainties
1.1 Approach to risk management
We believe the identification and management of risk is central to achieving our
corporate purpose of creating long-term shareholder value.
Risk can present itself in many forms, has the potential to impact our health and
safety, environment, community, reputation, regulatory, market and financial
performance and thereby the achievement of our corporate purpose.
By understanding and managing risk, we provide greater certainty and confidence
for our shareholders, employees, customers, suppliers, and for the communities in
which we operate. Successful risk management can be a source of competitive
advantage.
Our risks are viewed and managed on a Group-wide basis. The natural
diversification in our portfolio of commodities, geographies, currencies, assets and
liabilities is a key element in our risk management approach.
Risk management is embedded in our critical business activities, functions and
processes. Materiality and our tolerance for risk are key considerations in our
decision-making.
Risk issues are identified, analysed and assessed in a consistent manner.
Performance requirements exist for the identification, assessment, control and
monitoring of material risk issues that could threaten our corporate purpose and
business plans.These include:
• The potential for impacts on the achievement of our corporate purpose and
business plans is identified through risk assessments using approved
materiality and tolerability criteria. The severity of any risk event is assessed
according to a matrix that describes the degree of harm, injury or loss from
the most severe impact associated with that risk event, assuming reasonable
effectiveness of controls.
• A risk assessment (risk identification, risk analysis, including likelihood and
impact assessment and risk evaluation) is conducted for material risk issues.
• Risk controls are designed, implemented, operated and assessed to produce
a residual risk that is tolerable. Performance standards are established for
critical controls over material risks with supporting verification processes.
We have established processes that apply when entering or commencing new
activities in high-risk countries. Risk assessments and a supporting risk management
plan are required to ensure that potential reputation, legal, business conduct and
corruption-related exposures are managed and legislative compliance is maintained,
including relevant anti-corruption legislation and the application of any sanctions or
trade embargoes.
Our risk management governance approach is described in sections 3.14.1 and 3.15
of the Group’s Annual Report 2014.
1.2 Risk Factors
We believe that because of the international scope of our operations and the
industries in which we are engaged, there are numerous factors that may have an
adverse effect on our results and operations. The following describes the material
risks that could affect BHP Billiton.
External risks
Fluctuations in commodity prices and impacts of ongoing global economic volatility
may negatively affect our results, including cash flows and asset values
The prices we obtain for our oil, gas and minerals are determined by, or linked to,
prices in world markets, which have historically been subject to substantial volatility.
Our usual policy is to sell our products at the prevailing market prices. The diversity
provided by our relatively broad portfolio of commodities does not insulate the effects
of price changes. Fluctuations in commodity prices can occur due to price shifts
reflecting underlying global economic and geopolitical factors, industry demand,
increased supply due to the development of new productive resources, technological
change, product substitution and national tariffs. We are particularly exposed to price
movements in iron ore, coal, copper, and oil and gas. For example, a US$1 per
tonne decline in the average iron ore price and US$1 per barrel decline in the
average oil price would have an estimated impact on FY2014 profit after taxation of
US$112 million and US$54 million, respectively. Volatility in global economic growth,
particularly in the developing economies, has the potential to adversely impact future
demand and prices for commodities. The impact of potential long-term sustained
price shifts and short-term price volatility, including the effects of unwinding the
sustained monetary stimulus in the United States, creates the risk that our financial
and operating results including cash flows and asset values, will be materially and
adversely affected by unforeseen declines in the prevailing prices of our products.
Our financial results may be negatively affected by currency exchange rate
fluctuations
Our assets, earnings and cash flows are influenced by a wide variety of currencies
due to the geographic diversity of the countries in which we operate. Fluctuations in
the exchange rates of those currencies may have a significant impact on our
financial results. The US dollar is the currency in which the majority of our sales are
denominated. Operating costs are influenced by the currencies of those countries
where our mines and processing plants are located and also by those currencies in
which the costs of imported equipment and services are determined. The Australian
dollar, South African rand, Chilean peso, Brazilian real and US dollar and are some
of the currencies influencing our operating costs. Over recent years, higher
exchange rates (compared to the US dollar) of currencies in which the majority of
our operating costs are incurred have and may continue to adversely impact our
profit margins. Given the dominant role of the US currency in our affairs, the US
dollar is the currency in which we present financial performance. We do not
generally believe that active currency hedging provides long-term benefits to our
shareholders. From time to time, we consider currency protection measures
appropriate in specific commercial circumstances, subject to strict limits established
by our Board.
Reduction in Chinese demand may negatively impact our results
The Chinese market has been driving global materials demand and pricing over the
past decade. Sales into China generated US$23.3 billion (FY2013: US$20.1 billion)
or 34.7 per cent (FY2013:30.4 per cent) of our revenue in FY2014. The FY2014
sales into China by Business included 64.9 per cent Iron Ore, 17.8 per cent Copper,
8.5 per cent Coal, 6.6 per cent Aluminium, Manganese and Nickel and 2.2 per cent
Petroleum. A slowing in China’s economic growth could result in lower prices and
less demand for our products and negatively impact our results, including cash
flows.
Actions by governments or political events in the countries in which we operate could
have a negative impact on our business
We have operations in many countries around the globe, which have varying
degrees of political and commercial stability. We operate in emerging markets, which
may involve additional risks that could have an adverse impact on the profitability of
an operation. These risks could include terrorism, civil unrest, nationalisation,
renegotiation or nullification of existing contracts, leases, permits or other
agreements, restrictions on repatriation of earnings or capital and changes in laws
and policy, as well as other unforeseeable risks. Risks relating to bribery and
corruption, including possible delays or disruption resulting from a refusal to make
so-called facilitation payments, may be prevalent in some of the countries in which
we operate. If any of our major operations are affected by one or more of these risks,
it could have a negative effect on our operations in those countries, as well as the
Group’s overall operating results and financial condition.
Our operations are based on material long-term investments that are dependent on
long-term fiscal stability and could be adversely impacted by changes in fiscal
legislation. The natural resources industry continues to be regarded as a source of
tax revenue and can also be impacted by broader fiscal measures applying to
business generally.
Our business could be adversely affected by new government regulations, such as
controls on imports, exports, prices and greenhouse gas emissions. Increasing
requirements relating to regulatory, environmental and social approvals can
potentially result in significant delays in construction and may adversely affect the
economics of new mining and oil and gas projects, the expansion of existing
operations and results of our operations. Infrastructure, such as rail, ports, power
and water, is critical to our business operations. We have operations or potential
development projects in countries where government-provided infrastructure or
regulatory regimes for access to infrastructure, including our own privately operated
infrastructure, may be inadequate or uncertain or subject to legislative change.
These may adversely impact the efficient operations and expansion of our
Businesses.
We operate in several countries where ownership of land is uncertain and where
disputes may arise in relation to ownership. In Australia, the Native Title Act 1993
provides for the establishment and recognition of native title under certain
circumstances. In South Africa, the Extension of Security of Tenure Act (1997) and
the Restitution of Land Rights Act (1994) provide for various landholding rights. Such
legislation could negatively affect new or existing projects.
These regulations are complex, difficult to predict and outside our control and could
negatively affect our Company, future results and our financial condition.
Business risks
Failure to discover or acquire new resources, maintain reserves or develop new
operations could negatively affect our future results and financial condition
The demand for our products and production from our operations results in existing
reserves being depleted over time. As our revenues and profits are derived from our
oil and gas and minerals operations, our results and financial condition are directly
related to the success of our exploration and acquisition efforts, and our ability to
generate reserves to meet our production requirements. Exploration activity occurs
adjacent to established operations and in new regions, in developed and less-
developed countries. These activities may increase land tenure, infrastructure and
related political risks. A failure in our ability to discover or acquire new resources,
maintain reserves or develop new operations in sufficient quantities to maintain or
grow the current level of our reserves could negatively affect our results, financial
condition and prospects.
Future deterioration in commodities pricing may make some existing reserves
uneconomic. Our actual drilling activities and future drilling budget will depend on our
mineral inventory size and quality, drilling results, commodity prices, drilling and
production costs, availability of drilling services and equipment, lease expirations,
transportation pipelines and other infrastructure constraints, regulatory approvals
and other factors.
There are numerous uncertainties inherent in estimating mineral and oil and gas
reserves. Geological assumptions about our mineralisation that are valid at the time
of estimation may change significantly when new information becomes available.
Estimates that the indicated amount of reserves will be recovered or that it will be
recovered at the cost we anticipate are based on uncertain assumptions. The
uncertain global financial outlook may affect economic assumptions related to
reserve recovery and may require reserve restatements. Reserve restatements
could negatively affect our results and prospects.
Potential changes to our portfolio of assets through acquisitions and divestments
may have a material adverse effect on our future results and financial condition
We regularly review the composition of our asset portfolio and from time to time may
add assets to the portfolio or divest assets from the portfolio. There are a number of
risks associated with such acquisitions or divestments. These include adverse
market reaction to such changes or the timing or terms on which such changes are
made, the imposition of adverse regulatory conditions and obligations, commercial
objectives not being achieved as expected, unforeseen liabilities arising from such
changes to the portfolio, sales revenues and operational performance not meeting
our expectations, anticipated synergies or cost savings being delayed or not being
achieved, inability to retain key staff and transaction-related costs being more than
anticipated. These factors could negatively affect our reputation, future results and
financial condition.
Increased costs and schedule delays may adversely affect our development projects
Although we devote significant time and resources to our project planning, approval
and review process, many of our development projects are highly complex and rely
on factors that are outside our control, which may cause us to underestimate the
cost or time required to complete a project. For instance, accidents during
development projects may cause setbacks or cost overruns, required licences,
permits or authorisations to build a project may be unobtainable at anticipated costs,
or may be obtained only after significant delay and market conditions may change
making a project less profitable than initially projected.
In addition, we may fail to manage projects as effectively as we anticipate and
unforeseen challenges may emerge.
Any of these may result in increased capital costs and schedule delays at our
development projects, adversely affecting our development projects and impacting
anticipated financial returns.
Financial risks
If our liquidity and cash flow deteriorate significantly it could adversely affect our
ability to fund our major capital programs
We seek to maintain a solid ‘A’ credit rating as part of our strategy. However,
fluctuations in commodity prices and the ongoing global economic volatility may
adversely impact our future cash flows and ability to access capital from financial
markets at acceptable pricing. If our key financial ratios and credit rating are not
maintained, our liquidity and cash reserves, interest rate costs on borrowed debt,
future access to financial capital markets and the ability to fund current and future
major capital programs could be adversely affected.
We may not recover our investments in mining, oil and gas assets, which may
require financial write-downs
One or more of our assets may be impacted by changed market or industry
structures, commodity prices, technical operating difficulties, inability to recover our
mineral, oil or gas reserves and increased operating cost levels. These may cause
us to fail to recover all or a portion of our investment in mining and oil and gas assets
and may require financial write-downs, including goodwill adversely impacting our
financial results.
The commercial counterparties we transact with may not meet their obligations,
which may negatively impact our results
We contract with a large number of commercial and financial counterparties,
including end-customers, suppliers and financial institutions. Global economic
volatility continues to strain global financial markets, with tighter liquidity in China
and uncertain business conditions generally. We maintain a ‘one book’ approach with
commercial counterparties to ensure all credit exposures are quantified. Our existing
counterparty credit controls may not prevent a material loss due to credit exposure to
a major customer or financial counterparty. In addition, customers, suppliers,
contractors or joint venture partners may fail to perform against existing contracts
and obligations. Non-supply of key inputs, such as tyres, mining and mobile
equipment, diesel and other key consumables, may unfavourably impact costs and
production at our operations. These factors could negatively affect our financial
condition and results of operations.
Operational risks
Cost pressures and reduced productivity could negatively impact our operating
margins and expansion plans
Cost pressures may continue to occur across the resources industry. As the prices
for our products are determined by the global commodity markets in which we
operate, we do not generally have the ability to offset these cost pressures through
corresponding price increases, which can adversely affect our operating margins.
Notwithstanding our efforts to reduce costs and a number of key cost inputs being
commodity price-linked, the inability to reduce costs and a timing lag may adversely
impact our operating margins for an extended period.
A number of our operations, such as aluminium and copper, are energy or water
intensive and, as a result, the Group’s costs and earnings could be adversely
affected by rising costs or by supply interruptions. These could include the
unavailability of energy, fuel or water due to a variety of reasons, including
fluctuations in climate, significant increases in costs, inadequate infrastructure
capacity, interruptions in supply due to equipment failure or other causes and the
inability to extend supply contracts on economic terms.
Our Australian-based operations may continue to be affected by the Australian Fair
Work Act 2009 as labour agreements expire and Businesses are required to
collectively bargain with unions. In some instances, labour unions are pursuing wage
claims in the bargaining process, and/or claims about union involvement in
operational decision-making. Claims or labour disputes may adversely affect
productivity and costs. Industrial action in pursuit of claims associated with the
bargaining process has occurred or been threatened in some Businesses, and is
likely to continue to occur as unions press claims as part of the collective bargaining
process.
These factors could lead to increased operating costs at existing operations and
could negatively impact our operating margins and expansion plans.
Unexpected natural and operational catastrophes may adversely impact our
operations
We operate extractive, processing and logistical operations in many geographic
locations, both onshore and offshore. Our key port facilities are located at Port
Hedland and Hay Point in Australia. We have 11 underground mines, including
seven underground coal mines. Our operational processes may be subject to
operational accidents, such as port and shipping incidents, underground mine and
processing plant fire and explosion, open-cut pit wall failures, loss of power supply,
railroad incidents, loss of well control, environmental pollution and mechanical critical
equipment failures. Our operations may also be subject to unexpected natural
catastrophes, such as earthquakes, flood, hurricanes and tsunamis. Our northwest
Western Australia iron ore, Queensland coal and Gulf of Mexico oil and gas
operations are located in areas subject to cyclones or hurricanes. Our Chilean
copper operations are located in a known earthquake and tsunami zone. Based on
our risk management and concerns about the value of external insurance in the
natural resource sector, our risk financing (insurance) approach is to minimise or not
to purchase external insurance for certain risks, including property damage,
business interruption, construction-related risk, marine cargo and primary liability
risks. Existing business continuity plans may not provide protection for all of the
costs that arise from such events. The impact of these events could lead to
disruptions in production, increased costs and loss of facilities more than offsetting
external premiums saved, which would adversely affect our financial results and
prospects. Where external insurance is purchased, third party claims arising from
these events may exceed the limit of liability of the insurance policies we have in
place.
Our non-operated assets may not comply with our standards
Some of our assets are operated and managed by joint venture partners or by other
companies. Management of our non-operated assets may not comply with our
management and operating standards, controls and procedures, including our
health, safety, environment and community (HSEC) standards. Failure to adopt
equivalent standards, controls and procedures at these assets could lead to higher
costs and reduced production and adversely impact our results and reputation.
Breaches in our information technology security processes may adversely impact
our business activities
We maintain global information technology (IT) systems, consisting of infrastructure,
applications and communications networks to support our business activities. These
systems could be subject to security breaches (e.g. cyber-crime) resulting in theft,
disclosure or corruption of information, including information relating to acquisitions
and divestments, strategic decision-making, non-public investment market
communications or commercially sensitive information relating to major contracts.
Security breaches could also result in misappropriation of funds or disruptions to our
operations.
Sustainability risks
Safety, health, environmental and community impacts, incidents or accidents and
related regulations may adversely affect our people, operations and reputation or
licence to operate
Safety
Potential safety events that may have a material adverse impact on our operations
include fire, explosion or rock fall incidents in underground mining operations,
personnel conveyance equipment failures in underground operations, aircraft
incidents, incidents involving light vehicles and mining mobile equipment, ground
control failures, well blowouts, explosions or gas leaks, and accidents involving
inadequate isolation and working from heights or lifting operations.
Health
Health risks faced include fatigue, musculoskeletal illnesses and occupational
exposure to noise, silica, manganese, diesel exhaust particulate, fluorides, coal tar
pitch, nickel and sulphuric acid mist. Longer-term health impacts may arise due to
unanticipated workplace exposures or historical exposures of our workforce to
hazardous substances. These effects may create future financial compensation
obligations.
Infectious diseases such as malaria may have a material adverse impact upon our
workers or on our communities, primarily in Africa. Because we operate globally, we
may be affected by potential pandemic influenza outbreaks, such as A(H1N1) and
avian flu, in any of the regions in which we operate.
Environment
Environmental incidents have the potential to lead to material adverse impacts on
our operations. These include uncontrolled tailings containment breaches,
subsidence from mining activities, escape of polluting substances and uncontrolled
releases of hydrocarbons.
Our operations by their nature have the potential to adversely impact biodiversity,
water resources and related ecosystem services. Changes in scientific
understanding of these impacts, regulatory requirements or stakeholder expectations
may prevent or delay project approvals and result in increased costs for mitigation,
offsets or compensatory actions.
We provide for operational closure and site rehabilitation. Our operating and closed
facilities are required to have closure plans. Changes in regulatory or community
expectations may result in the relevant plans not being adequate. This may increase
financial provisioning and costs at the affected operations.
Community
Local communities may become dissatisfied with the impact of our operations or
oppose our new development projects, including through litigation, potentially
affecting costs and production, and in extreme cases viability. Community related
risks may include community protests or civil unrest, and may cause delays to
proposed developments. Our operations or activities also risk inadvertent breaches
of human rights or other international laws or conventions.
HSE legislation
The nature of the industries in which we operate means many of our activities are
highly regulated by health, safety and environmental (HSE) laws. As regulatory
standards and expectations are constantly developing, we may be exposed to
increased litigation, compliance costs and unforeseen environmental rehabilitation
expenses.
Legislation requiring manufacturers, importers and downstream users of chemical
substances, including metals and minerals, to establish that the substances can be
used without negatively affecting health or the environment may impact our
operations and markets. These potential compliance costs, litigation expenses,
regulatory delays, rehabilitation expenses and operational costs could negatively
affect our financial results.
Hydraulic fracturing
Our Onshore US operations involve hydraulic fracturing, an essential and common
practice in the oil and gas industry to stimulate production of natural gas and oil from
dense subsurface rock formations. Hydraulic fracturing involves using water, sand
and a small amount of chemicals to fracture the hydrocarbon-bearing rock formation,
to allow flow of hydrocarbons into the wellbore. We routinely apply hydraulic
fracturing techniques in our drilling and completion programs.
Attention given to the hydraulic fracturing process could lead to greater opposition to
oil and gas production activities using hydraulic fracturing techniques. Increased
regulation could impose more stringent permitting, public disclosure and well
construction requirements on hydraulic fracturing operations. In the United States,
the hydraulic fracturing process is typically regulated by relevant US state regulatory
bodies. Some states are considering changes to regulations in relation to permitting,
public disclosure, and/or well construction requirements on hydraulic fracturing and
related operations, including the possibility of outright bans on the process.
Arkansas, Louisiana and Texas (the states in which we currently operate) have
adopted various laws, regulations or issued regulatory guidance concerning
hydraulic fracturing.
Several US federal agencies are also reviewing or advancing regulatory proposals
concerning hydraulic fracturing and related operations. The US Environmental
Protection Agency (EPA) commenced a study of the potential impacts of hydraulic
fracturing activities on drinking water resources and issued a non-determinative
Progress Report in December 2012. A draft report, not including prospective case
study work, is expected in late CY2014. The EPA is expected to issue a final report
for peer review in CY2016. The EPA’s Office of Inspector General is researching the
EPA’s and states’ ability to manage potential threats to water resources from
hydraulic fracturing, with a possible longer-term study to follow. The US Bureau of
Land Management (BLM) is planning to issue a revised proposed rule in CY2014
that would impose new requirements on hydraulic fracturing operations conducted
on federal lands, including the disclosure of chemicals used, wellbore integrity, water
use and disposal of flow back water. Activity at the federal level, including the
ongoing EPA study, BLM rules and other analysis by federal and state agencies to
assess the impacts of hydraulic fracturing could spur additional legislative or
regulatory actions.
While we have not experienced a material delay or substantially higher operating
costs as a result of current regulatory requirements in our Onshore US operations,
we cannot predict whether additional federal, state or local laws or regulations will be
enacted and what such actions would require or prohibit. Additional legislation or
regulation could subject our operations to delays and increased costs, or prohibit
certain activities, which could adversely affect the financial performance of our
Onshore US operations.
Due to the nature of our operations, HSEC incidents or accidents and related
regulations may adversely affect our reputation or licence to operate.
Climate change may impact the value of our Company, and our operations and
markets
The physical impacts of climate change and various regulations that seek to address
climate change may negatively affect our operations, productivity and the markets in
which we sell our products. According to the Intergovernmental Panel on Climate
Change (IPCC), fossil fuel-related emissions are a significant source of greenhouse
gases contributing to climate change. We produce fossil fuels such as coal, oil and
gas for sale to customers, and we use fossil fuels in our mining and processing
operations either directly or through the purchase of fossil fuel-based electricity.
A number of national governments have already introduced or are contemplating the
introduction of regulatory responses to greenhouse gas emissions from the
combustion of fossil fuels to address the impacts of climate change. This includes
countries where we have operations such as Australia, the United States, South
Africa and Chile, as well as customer markets such as China, India and Europe.
From a medium to long-term perspective, we are likely to see some adverse
changes in the cost position of our greenhouse gas-intensive assets and energy-
intensive assets as a result of regulatory impacts in the countries where we operate.
These proposed regulatory mechanisms may impact our operations directly or
indirectly through our suppliers and customers. Assessments of the potential impact
of future climate change regulation are uncertain given the wide scope of potential
regulatory change in the many countries in which we operate. For example, the
Australian Government repealed a carbon tax in 2014, the South African
Government plans to introduce a carbon tax beginning in 2016 and carbon pricing is
being discussed as part of a broader tax reform package in Chile.
There is a potential gap between the current valuation of fossil fuel reserves on the
balance sheets of companies and in global equities markets and the reduced value
that could result if a significant proportion of reserves were rendered incapable of
extraction in an economically viable fashion due to regulatory or market responses to
climate change. In such a scenario, reserve assets held on our balance sheet may
need to be impaired or written off and our inability to make productive use of such
assets may also negatively impact our financial condition and results.
Changing consumer demand towards alternative energy supply options could
present a threat to existing fossil fuel markets.
The physical effects of climate change on our operations may include changes in
rainfall patterns, water shortages, rising sea levels, increased storm intensities and
higher temperatures. These effects may adversely impact the financial performance
of our operations.
A breach of our governance processes may lead to regulatory penalties and loss of
reputation
We operate in a global environment that encompasses multiple jurisdictions and
complex regulatory frameworks. Our governance and compliance processes, which
include the review of internal controls over financial reporting and specific internal
controls in relation to offers of things of value to government officials and
representatives of state-owned enterprises, may not prevent future potential
breaches of law, accounting or governance practice. Our Code of Business Conduct,
together with our mandatory policies, such as the anti-corruption, trade and financial
sanctions and competition policies, may not prevent instances of fraudulent
behaviour and dishonesty nor guarantee compliance with legal or regulatory
requirements. This may lead to regulatory fines, disgorgement of profits, litigation,
loss of operating licences or reputational damage.
1.3 Management of principal risks
The scope of our operations and the number of industries in which we operate and
engage mean that a range of factors may impact our results. Material risks that could
negatively affect our results and performance are described in section 1.7.2 of the
Group’s Annual Report 2014. Our approach to managing these risks is outlined
below.
Principal risk area Risk management approach
External risks
Risks arise from falls in commodity The diversification of our portfolio of
prices and demand in major markets commodities, geographies and
(such as China or Europe) or changes in currencies is a key strategy for reducing
currency exchange rates and actions by the effects of volatility. Section 1.15.1 of
governments and political events that the Group’s Annual Report 2014
impact long-term fiscal stability. describes external factors and trends
affecting our results and note 29
‘Financial risk management’ to the
Financial Statements in the Group’s
Annual Report 2014 outlines the Group’s
financial risk management strategy,
including market, commodity, and
currency risk. The Financial Risk
Management Committee oversees these
risks as described in sections 3.15 and
3.16 of the Group’s Annual Report 2014.
We also engage with governments and
other key stakeholders to ensure the
potential adverse impacts of proposed
fiscal, tax, resource investment,
infrastructure access and regulatory
changes are understood and where
possible mitigated.
Business risks
Risks include the inherent uncertainty of The Group Resource and Business
identifying and proving reserves, adding Optimisation function provides
and divesting assets and managing our governance and technical leadership for
capital development projects. Mineral Resource development and Ore
Reserves reporting as described in
section 2.3.2 of the Group’s Annual
Report 2014. Our governance over
reporting of Petroleum reserves is
described in section 2.3.1 of the Group’s
Annual Report 2014.
We have established investment
approval processes that apply to all
major capital projects and asset
divestment and acquisitions. The
Investment Committee oversees these
as described in sections 3.15 and 3.16 of
the Group’s Annual Report 2014. The
Group Project Management function
additionally seeks to ensure that projects
are safe, predictable and competitive.
We have established project hubs as
operating centres for the study and
execution of a pipeline of major capital
projects using a program management
approach.
Financial risks
Continued volatility in global financial We seek to maintain a solid ‘A’ credit
markets may adversely impact future rating, supported by our portfolio risk
cash flows, our ability to adequately management strategy. As part of this
access and source capital from financial strategy, commodity prices and currency
markets and our credit rating. Volatility exchange rates are not hedged, and
may impact planned expenditures, as wherever possible we take the prevailing
well as the ability to recover investments market price. We use Cash Flow at Risk
in mining and oil and gas projects. In analysis to monitor volatilities and key
addition, the commercial counterparties financial ratios. Credit limits and review
(customers, suppliers and financial processes are required to be established
institutions) we transact with may, due to for all customers and financial
adverse market conditions, fail to meet counterparties. The Financial Risk
their contractual obligations. Management Committee oversees these
as described in sections 3.15 and 3.16 of
the Group’s Annual Report 2014. Note
29 ‘Financial risk management’ to the
Financial Statements in the Group’s
Annual Report 2014 outlines our financial
risk management strategy.
Operational risks
Operating cost pressures and reduced We seek to ensure that adequate
productivity could negatively impact operating margins are maintained
operating margins and expansion plans. through our strategy to own and operate
Non-operated assets may not comply large, long-life, low-cost and expandable
with our standards. Unexpected natural upstream assets.
and operational catastrophes may
The Group’s concentrated effort to
adversely impact our operations.
reduce operating costs and drive
Breaches in IT security processes may
productivity improvements has realised
adversely impact the conduct of our
tangible results, with a reduction in
business activities.
controllable costs.
The capability to sustain productivity
improvements is being further enhanced
through continued refinements to our
Operating Model. The Operating Model
is designed to deliver a simple and
scalable organisation, providing a
competitive advantage through defining
work, organisation and performance
measurements. Defined global business
processes, including 1SAP, provide a
standardised way of working across the
organisation. Common processes
generate useful data and improve
operating discipline. Global sourcing
arrangements have been established to
ensure continuity of supply and
competitive costs for key supply inputs.
We seek to influence the application of
our standards to non-operated assets.
Through the application of our risk
management processes, we identify
catastrophic operational risks and
implement the critical controls and
performance requirements to maintain
control effectiveness. Business continuity
plans are required to be established to
mitigate consequences. Consistent with
our portfolio risk management approach,
we continue to be largely self-insured for
losses arising from property damage,
business interruption and construction.
IT security controls to protect IT
infrastructure, applications and
communication networks and respond to
security incidents are in place and
subject to regular monitoring and
assessment. To maintain adequate levels
of protection, we also continue to monitor
the development of threats in the
external environment and assess
potential responses to those threats.
Sustainability risks
HSEC incidents or accidents and related Our approach to sustainability risks is
regulations may adversely affect our reflected in Our Charter and described in
people, operations and reputation or section 1.14 of the Group’s Annual
licence to operate. The potential physical Report 2014. A comprehensive set of
impacts and related responses to climate Group Level Documents (GLDs) set out
change may impact the value of our Group-wide HSEC-related performance
Company, and operations and markets. requirements to ensure effective
Given we operate in a challenging global management control of these risks.
environment straddling multiple
Our approach to corporate planning,
jurisdictions, a breach of our governance
investment decision-making and portfolio
processes may lead to regulatory
management provides a focus on the
penalties and loss of reputation.
identification, assessment and
management of climate change risks.
We have been applying an internal price
on carbon in our investment decisions for
more than a decade. Through a
comprehensive and strategic approach
to corporate planning, we work with a
broad range of scenarios to assess our
portfolio, including consideration of a
broad range of potential policy responses
to and impacts from climate change. Our
models suggest that BHP Billiton’s
portfolio diversification results in the
resilience of our overall asset valuation
through all these scenarios.
As with our other risks, for climate
change risk our Risk Management GLD
provides the framework for risk
management. Internal audits are
conducted to test compliance with GLD
requirements and action plans are
developed to address any gaps. Key
findings are reported to senior
management and reports are considered
by relevant Board committees.
Our Code of Business Conduct sets out
requirements related to working with
integrity, including dealings with
government officials and third parties.
Processes and controls are in place for
the internal control over financial
reporting, including under Sarbanes-
Oxley. We have also established anti-
corruption and antitrust related
performance requirements, which are
overseen by the Legal and Compliance
function. Additionally, the Disclosure
Committee oversees our compliance with
securities dealing obligations and
continuous and periodic disclosure
obligations as described in sections 3.15
and 3.16 of the Group’s Annual Report
2014.
4. Related party transactions
There have been no related party transactions that have taken place during the year
ended 30 June 2014 that have materially affected the financial position or the
performance of the BHP Billiton Group during that period. Details of the related party
transactions that have taken place during the year ended 30 June 2014 are set out
in Notes 31 ‘Key Management Personnel’ and 32 ‘Related party transactions’ to the
Financial Statements on pages 281 to 282 of the Group’s Annual Report 2014.
5. Statement of Directors’ responsibilities
“In accordance with a resolution of the Directors of the BHP Billiton Group, the
Directors declare that:
(a) in the Directors’ opinion and to the best of their knowledge the financial
statements and notes, set out in sections 7.1 and 7.2 of the Group’s Annual
Report 2014, are in accordance with the UK Companies Act 2006 and the
Australian Corporations Act 2001, including:
(i) Complying with the applicable Accounting Standards; and
(ii) Giving a true and fair view of the assets, liabilities, financial position
and profit or loss of each of BHP Billiton Limited, BHP Billiton Plc, the
BHP Billiton Group and the undertakings included in the consolidation
taken as a whole as at 30 June 2014 and of their performance for the
year ended 30 June 2014;
(b) the financial report also complies with International Financial Reporting
Standards, as disclosed in note 1 of the Group’s Annual Report 2014;
(c) to the best of the Directors’ knowledge, the management report (comprising
the Strategic Report and Directors’ Report) includes a fair review of the
development and performance of the business and the financial position of
the BHP Billiton Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that the Group faces; and
(d) in the Directors’ opinion there are reasonable grounds to believe that each of
the BHP Billiton Group, BHP Billiton Limited and BHP Billiton Plc will be able
to pay its debts as and when they become due and payable.”
BHP Billiton Plc Registration number 3196209
Registered in England and Wales
Registered Office: Neathouse Place London SW1V 1LH United Kingdom
A member of the BHP Billiton Group which is headquartered in Australia
Sponsor: Merrill Lynch South Africa Proprietary Limited
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