Wrap Text
Annual Financial Report 2015
BHP Billiton Plc
Registration number 3196209
Registered in England and Wales
Share code: BIL
ISIN: GB0000566504
Issued by: BHP Billiton Plc
Date: 23 September 2015
To: London Stock Exchange
JSE Limited
For Release: Immediately
Contact: Elizabeth Hobley +44 (0) 20 7802 4054
BHP Billiton Plc – Annual Financial Report 2015
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 2015
http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-
reports/2015/bhpbillitonannualreport2015.pdf
• Sustainability Report 2015
http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-
reports/2015/bhpbillitonsustainabilityreport2015.pdf
• Form 20-F
http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-
reports/2015/bhpbillitonform20f2015.pdf
• Notice of Annual General Meeting 2015 - BHP Billiton Plc
http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual-
reports/2015/bhpbillitonnoticeofmeetingplc2015.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 2015 (page references
are to pages in the Annual Report) and should be read in conjunction with BHP
Billiton’s Final Results announcement issued on 25 August 2015. 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 2015 in full.
1. Principal risks and uncertainties
1.1 Approach to risk management
We believe the identification and management of risk are central to achieving our
corporate purpose of creating long-term shareholder value.
Risk 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 that:
• 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 relevant
sanctions or trade embargos.
Our risk management governance approach is described in sections 3.14.1 and 3.15
of the Group’s Annual Report 2015.
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 fully 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 FY2015 profit after
taxation of US$144 million and US$54 million, respectively. For further information
relating to commodity price impacts, refer to section 1.15.1 of the Group’s Annual
Report 2015. 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 and the currency in which we present our financial performance.
Operating costs are influenced by the currencies of those countries where our mines
and mine processing plants are located and also by those currencies in which the
costs of imported equipment and services are determined. The Australian dollar,
Chilean peso, and US dollar are some of the currencies influencing our operating
costs. 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$16.3 billion (FY2014: US$21.8 billion)
or 36.6 per cent (FY2014: 38.5 per cent) of our revenue in FY2015. The FY2015
sales into China by Business included 66 per cent Iron Ore, 23 per cent Copper, nine
per cent Coal, one per cent Nickel West (reported in Group and Unallocated) and
one per cent Petroleum. A continued slowing in China’s economic growth and
demand could result in lower prices 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 or interests (e.g. through our non-operated assets) in various
countries around the globe, which have varying degrees of political, judicial and
commercial stability. We operate or have interests in certain 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, judicial
activism, regulatory investigation, nationalisation, protectionism, renegotiation or
nullification of existing contracts, leases, permits or other agreements, imposts,
controls or prohibitions on the production or use of certain products, 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
businesses generally.
Our business could be adversely affected by new government regulations and
international standards, such as controls on imports, exports, prices and greenhouse
gas emissions. Increasing requirements relating to regulatory, environmental and
social or community 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. The impact of climate
change may increase competition for, and the regulation of, limited resources, such
as power and water. These factors may adversely impact the efficient operations and
expansion of our business.
We operate in countries where ownership of land is uncertain and where disputes
may arise in relation to ownership. For example, in Australia, the Native Title Act
1993 provides for the establishment and recognition of native title under certain
circumstances.
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 future 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 future production requirements at a
competitive cost. 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, railroads 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 of reserves that will be recovered or the cost at which we anticipate such
reserves will be recovered 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, incidents 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,
thereby 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 and impact 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 fully 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 segment 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 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, inadequate
infrastructure capacity, interruptions in supply due to equipment failure or other
causes and the inability to extend supply contracts on economic terms.
Many of our Australian employees have conditions of employment, including wages,
governed by the operation of the Australian Fair Work Act 2009. Conditions of
employment are often contained within collective agreements that are required to be
renegotiated on expiry (typically every three to four years). In some instances, under
the operation of the Fair Work Act it can be expected that unions will pursue
increases to conditions of employment, including wages, and/or claims for greater
union involvement in business decision-making.
In circumstances where a collective agreement is being renegotiated, industrial
action is permitted under the Fair Work Act. Industrial action and any subsequent
settlement to mitigate associated commercial damage can adversely affect
productivity, customer perceptions as a reliable supplier and contribute to increases
in costs.
The industrial relations environment in Chile remains challenging and it is possible
that we will see further disruptions. Changes to labour legislation are being
considered by the Chilean Congress, and if passed would result in the right to have
a single negotiating body across different operations owned by a single company,
which may also result in higher risk of operational stoppages.
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 Coloso
and Antofagasta in Chile, and Port Hedland and Hay Point in Australia. We have five
underground mines, including three 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. 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 information technology (IT) systems, consisting of infrastructure,
business applications and communications networks to support our business
activities. These systems may be subject to security breaches (e.g. cyber-crime) that
can result in misappropriation of funds, increased health and safety risks to staff,
disruption to our operations, environmental damage, poor product quality, loss of
intellectual property, disclosure of commercially sensitive information and
reputational damage.
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, diesel exhaust particulate, 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.
Given 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. Potential compliance costs, litigation expenses, regulatory
delays, rehabilitation expenses and operational costs arising from such legislation
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 and 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. The agency issued a non-
determinative Progress Report in December 2012 and is expected to issue a final
draft assessment report for peer review and comment in CY2015. As part of the
studies' efforts, the EPA released a preliminary analysis on 30 March 2015. The EPA
is expected to issue a final report for peer review in CY2016. The EPA's Office of
Inspector General continues to research 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) issued a final rule
on 20 March 2015 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. The BLM regulation
took effect on 24 June 2015. 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 in our Onshore US operations as a result of current regulatory requirements,
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. 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 and Chile,
as well as customer markets such as China, India and Europe. In addition, the
international community aims to complete a new global climate agreement at the
21st Conference of the Parties (COP21) in Paris in December 2015. The absence of
regulatory certainty, global policy inconsistencies and the challenges presented by
managing our portfolio across a variety of regulatory frameworks has the potential to
adversely impact our operations and supply chain. 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 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 technology, regulatory or market
responses to climate change. In such a scenario, stranded 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.
The growth of alternative energy supply options, such as renewables and nuclear,
could also present a change to the energy mix that may impact on 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 trade and financial sanctions, and 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 and/or reputational damage.
1.3 Approach to risk management
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 2015. Our approach to managing these risks is outlined
below.
Principal risk area Risk management approach
External risks The diversification of our portfolio of
Risks arise from falls in commodity commodities, geographies and
prices and demand in major markets currencies is a key strategy for reducing
(such as China or Europe) or changes in the effects of volatility. Section 1.15.1 of
currency exchange rates and actions by the Group’s Annual Report 2015
governments and political events that describes external factors and trends
impact long-term fiscal stability. affecting our results and note 23
'Financial risk management' to the
Financial Statements in the Group’s
Annual Report 2015 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 2015.
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 Our Geoscience Technology and
identifying and proving reserves, adding Engineering 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 2015. Our governance over
reporting of Petroleum reserves is
described in section 2.3.1of the Group’s
Annual Report 2015.
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 2015. Our
Project Management function additionally
seeks to ensure that projects are safe,
predictable and competitive, and it has
established a continuous improvement
practice.
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, the diversification of our
markets and our credit rating. Volatility portfolio reduces overall cash flow
may impact planned expenditures, as volatility. Commodity prices and currency
well as the ability to recover investments exchange rates are not hedged, and
in mining and oil and gas projects. In wherever possible we take the prevailing
addition, the commercial counterparties market price. We use Cash Flow at Risk
(customers, suppliers and financial analysis to monitor volatilities and key
institutions) we transact with may, due to financial ratios. Credit limits and review
adverse market conditions, fail to meet processes are required to be established
their contractual obligations. for all customers and financial
counterparties. The Financial Risk
Management Committee oversees these
as described in sections 3.15 and 3.16 of
the Group’s Annual Report 2015. Note
23 'Financial risk management' to the
Financial Statements in the Group’s
Annual Report 2015 outlines our financial
risk management strategy.
Operational risks We seek to ensure that adequate
Operating cost pressures and reduced operating margins are maintained
productivity could negatively impact through our strategy to own and operate
operating margins and expansion plans. large, long-life, low-cost and expandable
Non-operated assets may not comply upstream assets.
with our standards. Unexpected natural The Group's concentrated effort to
and operational catastrophes may reduce operating costs and drive
adversely impact our operations. productivity improvements has realised
Breaches in IT security processes may tangible results, with a reduction in
adversely impact the conduct of our controllable costs.
business activities. 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.
From an industrial relations perspective,
detailed planning is undertaken to
support the renegotiation of employment
agreements and is supported by training
and access to expertise in negotiation
and agreement making.
IT security controls to protect IT
infrastructure, business 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 may Our approach to sustainability risks is
adversely affect our people or reflected in Our Charter and described in
neighbouring communities, operations section 1.14 of the Group’s Annual
and reputation or licence to operate. The Report 2015, including a Company-level
potential physical impacts and related safety intervention that was initiated in
responses to climate change may impact FY2015. A comprehensive set of Group
the value of our Company, and Level Documents (GLDs) set out Group-
operations and markets. Given we wide HSEC-related performance
operate in a challenging global requirements designed to ensure
environment straddling multiple effective management control of these
jurisdictions, a breach of our governance risks.
processes may lead to regulatory
penalties and loss of reputation.
Our approach to corporate planning,
investment decision-making and portfolio
management provides a focus on the
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.
Our approach to engagement with
community stakeholders is outlined in
our Community GLD. Businesses are
also required to undertake social impact
opportunity assessments to identify,
mitigate or manage key potential social
and human rights risks.
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 established anti-
corruption and antitrust related
performance requirements, which are
overseen by the Legal and Compliance
function as described in section 3.17 of
the Group’s Annual Report 2015.
Additionally, the Disclosure Committee
oversees our compliance with securities
dealing obligations and continuous and
periodic disclosure obligations as
described in sections 3.15 and 3.18 of
the Group’s Annual Report 2015.
2. Related party transactions
There have been no related party transactions that have taken place during the year
ended 30 June 2015 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 2015 are set out
in notes 24 ‘Key management personnel’ and 33 ‘Related party transactions’ to the
Financial Statements on pages 243 and 261 of the Group’s Annual Report 2015.
3. Directors’ Responsibility Statement
The following statement which was prepared for the purposes of the Group’s Annual
Report 2015 is repeated here for the purposes of complying with DTR 6.3.5. It
relates to and is extracted from the Group’s Annual Report 2015 and is not
connected to the extracted and summarised information presented in this
announcement.
“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 2015, 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 2015 and of their performance for the
year ended 30 June 2015;
(b) the financial report also complies with International Financial Reporting
Standards, as disclosed in note 41 ’Basis of preparation and measurement’
of the Group’s Annual Report 2015;
(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.
Signed in accordance with a resolution of the Board of Directors on 10 September
2015, Jac Nasser AO, Chairman and Andrew Mackenzie, Chief Executive Officer.”
Sponsor: Merrill Lynch South Africa Proprietary Limited
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
Date: 23/09/2015 07:12:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
