TIDMBLT
RNS Number : 3835K
BHP Billiton PLC
21 September 2016
Issued by: BHP Billiton Plc
Date: 21 September 2016
To: London Stock Exchange
JSE Limited
For Release: Immediately
Contact: Helen Ratsey +44 (0) 20 7802 7540
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BHP Billiton Plc - Annual Financial Report 2016
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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 2016
http://www.bhpbilliton.com//media/bhp/documents/investors/annual-reports/2016/bhpbillitonannualreport2016.pdf
-- Sustainability Report 2016
http://www.bhpbilliton.com//media/bhp/documents/investors/annual-reports/2016/bhpbillitonsustainabilityreport2016.pdf
-- Form 20-F
http://www.bhpbilliton.com//media/bhp/documents/investors/annual-reports/2016/bhpbillitonform20f2016.pdf
-- Notice of Annual General Meeting 2016 - BHP Billiton Plc
http://www.bhpbilliton.com//media/bhp/documents/investors/annual-reports/2016/bhpbillitonnoticeofmeetingplc2016.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
2016 (page references are to pages in the Annual Report) and should
be read in conjunction with BHP Billiton's Final Results
announcement issued on 16 August 2016. 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 2016 in full.
1. Principal risks and uncertainties
1.1 Approach to risk management
Identifying and managing risk is central to achieving our
corporate purpose of creating long-term shareholder value.
If realised, risks have the potential to impact our health,
safety, environment, community, regulatory, market and financial
performance, as well as our reputation, and thereby the achievement
of our corporate purpose. Successful risk management can be a
source of competitive advantage.
We provide greater certainty and confidence for our stakeholders
by understanding and managing risk.
BHP Billiton's risks are viewed and managed on a Company-wide
basis. Our diversified portfolio of commodities, geographies,
currencies, assets and liabilities is a key part of our risk
management approach.
We embed risk management in our critical business activities,
functions, processes and systems. Materiality and risk tolerance
are key considerations in our decision-making.
We seek to identify, analyse and assess risk issues. We
implement the following performance requirements for material risks
that could threaten our corporate purpose or strategy:
-- Risk assessments - we identify, analyse (including likelihood
and impact assessment), evaluate, treat and monitor risks.
-- Risk controls - we design, implement, operate and assess
controls to determine control effectiveness. We establish
performance standards for critical controls over material risks
with supporting verification processes.
-- Risk materiality and tolerability evaluation - we assess the
materiality of the risk based on the degree of financial and
non-financial impacts, including health, safety, environment,
community, reputation and legal impacts. Tolerability assessment is
based on a combination of residual risk and control
effectiveness.
We apply established processes when entering or commencing new
activities in high-risk countries. These include risk assessments
and supporting risk management plans to ensure 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 embargoes.
For information on our risk management governance approach,
refer to sections 2.13.1 and 2.14 of the Annual Report 2016.
Robust risk assessment and viability statement
In accordance with the UK Corporate Governance Code, the Board
confirms that it has carried out a robust assessment of the
Company's principal risks, including those that would threaten the
business model, future performance, solvency or liquidity.
In accordance with the UK Corporate Governance Code (longer-term
viability), the Directors have assessed the prospects of the
Company over the next three years, taking account of the Company's
current position and principal risks.
The Directors believe a three-year viability assessment period
is appropriate for the following reasons. BHP Billiton has a
two-year budget, a five-year outlook and a 20-year strategic
planning horizon. The extent and synchronised nature of the decline
in commodity prices experienced in FY2016 were stronger than
anticipated, and the Company has publicly stated our view that the
outlook for the sector remains challenging and volatile in the
short to medium term. A significant proportion of the variability
in plans and budgets for the Company is influenced by exchange rate
volatility and price volatility. A three-year period was therefore
seen as striking an appropriate balance.
The Directors' assessment took into account, among other things,
the Company's commodity price protocols including low-case prices;
the latest funding and liquidity update; the long-dated maturity
profile of the Company's debt and the maximum debt maturing in any
one year; the Company-level risk profile and the mitigating actions
available should particular risks materialise; the annual Board
strategy forum, which provides a strategic review of the Company's
markets and plans under divergent scenarios and considers available
strategic options; the flexibility in the Company's capital and
exploration expenditure programs under the enhanced capital
allocation framework; and the reserve life of the Company's
minerals assets and the reserves-to-production life of its oil and
gas assets.
The Directors' assessment also took account of additional
stress-testing of the balance sheet against two significant risk
events: a shipping blockage of the Port Hedland Channel that could
disrupt export of iron ore and a short-term extreme hypothetical
event that catches the global resource industry off-guard, causing
an abrupt and significant disruption to global capital markets.
The Directors were also mindful of the scenario analysis
incorporated into the Company's corporate planning process. While
the scenarios use a 20-year time horizon, scenario planning is
important in helping identify the key uncertainties facing the
global economy and natural resources sector.
Taking account of these matters, and the Company's current
position and principal risks, the Directors have a reasonable
expectation that BHP Billiton will be able to continue in operation
and meet its liabilities as they fall due over the next three
years.
Risk factors
There are a number of factors that may have an adverse effect on
our results and operations.
The principal risks discussed below, separately or in
combination, could have a material effect on BHP Billiton's
strategic and operational plans and its reputation. In addition, we
have also set out the risks relating to the failure of the Fundão
tailings dam at Samarco Mineração S.A. (Samarco dam failure), which
could, separately or in combination with the principal risks, have
a material effect on our business, competitive position, cash
flows, prospects, liquidity and shareholder returns.
Samarco dam failure
Our potential liabilities from litigation and other actions
resulting from the Samarco dam failure are subject to significant
uncertainty and cannot be reliably estimated at this time but they
could have a material adverse effect on our business.
On 5 November 2015, the Samarco Mineração S.A. (Samarco) iron
ore operations experienced a tailings dam failure that resulted in
a release of mine tailings, flooding the communities of Bento
Rodrigues, Gesteira and Paracatu and impacting other communities
downstream and the Rio Doce. Samarco is a joint venture owned
equally by BHP Billiton Brasil Limitada (BHP Billiton Brasil) and
Vale S.A. (Vale). For information on the Samarco dam failure, refer
to section 1.4 of the Annual Report 2016.
The Samarco dam failure and subsequent suspension of Samarco's
mining and processing operations have had a significant impact on
our financial results for the year ended 30 June 2016, as described
in section 1.4 of the Annual Report 2016 and in note 3 'Significant
events - Samarco dam failure' to the Financial Statements in the
Annual Report 2016.
Mining and processing operations remain suspended following the
dam failure. Samarco is currently progressing plans to resume
operations; however, significant uncertainties surrounding the
nature and timing of any resumption of operations remain, including
as a result of Samarco's significant debt obligations. For further
details of financial information relating to Samarco refer to note
28 'Investments accounted for using the equity method' to the
Financial Statements in the Annual Report 2016.
BHP Billiton Brasil is among the defendants named in a number of
legal proceedings initiated by individuals, non-governmental
organisations (NGOs), corporations and governmental entities in
Brazilian federal and state courts following the Samarco dam
failure. The other defendants include Vale and Samarco. The
lawsuits seek various remedies, including rehabilitation costs,
compensation to injured individuals and families of the deceased,
recovery of personal and property losses, moral damages and
injunctive relief. These legal proceedings include civil public
actions filed by state prosecutors in Minas Gerais (claiming
damages of approximately R$7.5 billion (US$2.3 billion)), public
defenders in Minas Gerais (claiming damages of approximately R$10
billion (US$3.1 billion)) and state prosecutors in Espírito Santo
(claiming damages of approximately R$2 billion (US$620 million)).
Given the preliminary status of all these proceedings, and the
duplicative nature of the damages sought in these proceedings and
the R$20 billion (US$6.2 billion) and R$155 billion (US$48 billion)
claims noted below, it is not possible at this time to provide a
range of possible outcomes or a reliable estimate of potential
future exposures for BHP Billiton Brasil.
Among the claims brought against BHP Billiton Brasil is a public
civil claim commenced by the Federal Government of Brazil, states
of Espírito Santo, Minas Gerais and other public authorities
(Brazilian Authorities) on 30 November 2015, seeking the
establishment of a fund of up to R$20 billion (US$6.2 billion) in
aggregate for clean-up costs and damages.
On 2 March 2016, BHP Billiton Brasil together with Samarco and
Vale entered into a Framework Agreement (Framework Agreement) with
the Brazilian Authorities to establish the Fundação Renova that
will develop and execute environmental and socio-economic programs
to remediate and provide compensation for damage caused by the
Samarco dam failure. In light of the significant uncertainties
surrounding the nature and timing of ongoing future operations at
Samarco and based on currently available information, at 30 June
2016, BHP Billiton recognised a provision of US$1.2 billion, before
tax and after discounting, in respect of BHP Billiton Brasil's
potential obligations under the Framework Agreement.
The Framework Agreement was ratified by the Federal Court of
Appeal in Brasilia on 5 May 2016, suspending the R$20 billion
public civil claim. However, on 30 June 2016, the Superior Court of
Justice issued a preliminary order (Interim Order) suspending the
ratification of the Framework Agreement and reinstating the R$20
billion public civil claim. Samarco, Vale and BHP Billiton Brasil
and the Federal Government have appealed the Interim Order before
the Superior Court of Justice. It is not possible at this time to
provide a range of possible outcomes or a reliable estimate of
potential future exposures for BHP Billiton Brasil in relation to
the R$20 billion public civil claim.
BHP Billiton Brasil is also among the defendants named in a
claim brought by the Federal Public Prosecution Service on 3 May
2016, seeking R$155 billion (approximately US$43 billion) for
reparation, compensation and moral damages in relation to the
Samarco dam failure. Given the preliminary status of these
proceedings, it is not possible at this time to provide a range of
possible outcomes or a reliable estimate of potential future
exposures for BHP Billiton Brasil.
In addition, government inquiries and investigations relating to
the Samarco dam failure have been commenced by numerous agencies of
the Brazilian Government, and other lawsuits and investigations are
at the early stages of proceedings, including a shareholder action
filed in the United States against BHP Billiton and certain current
or former Directors and officers. For more information on the
shareholder action and other lawsuits relating to the Samarco dam
failure, refer to section 6.5 of the Annual Report 2016. Additional
lawsuits and government investigations relating to the Samarco dam
failure may be brought against BHP Billiton Brasil and possibly
other BHP Billiton entities in Brazil or other jurisdictions.
Works are underway to reinforce and improve the dam structures
at Samarco so as to contain the remaining tailings materials. A
large portion of the works are scheduled to be completed before the
next wet season commences. The potential nonetheless remains for
further release or downstream movement of tailings material during
this season, which may result in additional claims, fines and
proceedings (or impact existing proceedings) and may also have
additional consequences on the environment and the feasibility,
timing and scope of any restart of Samarco operations.
Our potential costs and liabilities in relation to the Samarco
dam failure are subject to a high degree of uncertainty and cannot
be reliably estimated at this time. The total amounts that we may
be required to pay will be dependent on many factors, including the
timing and nature of a potential restart of operations at Samarco,
the number of claims that become payable, the quantum of any fines
levied, the outcome of litigation and the amount and timing of
payments under any judgements or settlements. Nevertheless, such
potential costs and liabilities could have a material adverse
effect on our business, competitive position, cash flows,
prospects, liquidity and shareholder returns. For more information
on the Samarco dam failure, refer to section 1.4 of the Annual
Report 2016.
External risks
Fluctuations in commodity prices (including sustained price
shifts) 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 significant 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 necessarily insulate the Company from 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 or increased production from existing
resources, technological change, product substitution and national
tariffs. We are particularly exposed to price movements in iron
ore, coal, copper, 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 FY2016
profit after taxation of US$141 million and US$58 million,
respectively. For more information in relation to commodity price
impacts, refer to section 1.8.1 of the Annual Report 2016.
Volatility in global economic growth, particularly in developing
economies, has the potential to adversely affect future demand and
prices for commodities. The impact of sustained price shifts and
short-term price volatility, including the effects of unwinding the
sustained monetary stimulus in the United States, and uncertainty
surrounding the details of the United Kingdom's exit from the
European Union following the June 2016 referendum, creates the risk
that our financial and operating results, including cash flows and
asset values, will be materially and adversely affected by short or
long-term declines in the prevailing prices of our products.
Our financial results may be negatively affected by exchange
rate fluctuations
The geographic diversity of the countries in which we operate
means that our assets, earnings and cash flows are influenced by a
wide variety of currencies. 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 is denominated and the currency in which we present our
financial performance. Operating costs are influenced by the
currencies of those countries where our assets and facilities 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 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 the 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$13.2
billion (FY2015: US$16.3 billion) or 42.6 per cent (FY2015: 36.6
per cent) of our revenue in FY2016. FY2016 sales into China by
commodity included 61 per cent Iron Ore, 28 per cent Copper, 10 per
cent Coal and one per cent Nickel (reported in Group and
Unallocated). 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, additional regulation or political
events in the countries in which we operate could have a negative
impact on our business
There are varying degrees of political, judicial and commercial
stability in the locations in which we have operated and
non-operated assets around the globe. At the same time, our
exposure to emerging markets may involve additional risks that
could have an adverse effect 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 Company's overall operating results, financial
condition and prospects.
Our operated and non-operated assets are based on material
long-term investments that are dependent on long-term fiscal
stability and could be adversely affected by changes in fiscal
legislation, changes in interpretation of fiscal legislation,
periodic challenges and disagreements with tax authorities and
legal proceedings relating to fiscal matters. The natural resources
industry continues to be regarded as a source of tax revenue and
can also be adversely affected by broader fiscal measures applying
to businesses generally. The Group is currently involved in a
number of uncertain tax and royalty matters - refer to note 5
'Income tax expense' to the Financial Statements in the Annual
Report 2016 for further detail.
Our business could be adversely affected by new or evolving
government regulations and international standards, such as
controls on imports, exports, prices and greenhouse gas emissions.
The nature of the industries in which we operate means many of our
activities are highly regulated by laws relating to health, safety,
environment and community impacts. Increasing requirements relating
to regulatory, environmental, social or community approvals can
potentially result in significant delays or interruptions and may
adversely affect the economics of new mining and oil and gas
projects, the expansion of existing operations and the performance
of our operations. As regulatory standards and expectations are
constantly developing, we may be exposed to increased regulatory
review, compliance costs to meet new operating and reporting
standards and unforeseen closure and site rehabilitation
expenses.
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, 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 affect the expansion
of our business and ability of our assets to operate
efficiently.
We operate in countries where land tenure can be uncertain and
where disputes may arise in relation to ownership and use. For
example, in Australia, the Native Title Act 1993 provides for the
establishment and recognition of native title under certain
circumstances.
New or evolving regulations and international standards are
complex, difficult to predict and outside our control. Potential
compliance costs, litigation expenses, regulatory delays,
rehabilitation expenses and operational costs arising from
government action, regulatory change and evolving standards could
negatively affect our Company, future results, prospects 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, 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. Deterioration in
commodities pricing may make some existing reserves uneconomic. Our
actual exploration drilling activities and future drilling budget
will depend on our inventory size and quality, drilling results,
commodity prices, drilling and production costs, availability of
drilling services and equipment, lease expirations, land access,
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
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, or divest assets from, the
portfolio. There are a number of risks associated with acquisitions
or divestments. These include:
-- adverse market reaction to such changes or the timing or terms on which changes are made;
-- the imposition of adverse regulatory conditions and obligations;
-- commercial objectives not being achieved as expected;
-- unforeseen liabilities arising from 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 processes, 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 or
unexpected conditions encountered 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 develop and 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 adversely affect 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 strong balance sheet. However,
fluctuations in commodity prices and the ongoing global economic
volatility may adversely affect 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 adversely affected 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,
oil and gas assets and may require financial write-downs, including
goodwill, adversely affecting our financial results.
The commercial counterparties we transact with may not meet
their obligations, which may negatively affect our results
We contract with many 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. However, 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
Unexpected natural and operational catastrophes may adversely
impact our operations
We operate onshore and offshore extractive, processing and
logistical operations in many geographic locations. Our key port
facilities are located at Coloso and Antofagasta in Chile and Port
Hedland and Hay Point in Australia. We have four underground mines,
including one underground coal mine. 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 or tailings/waste storage facility
failures, loss of power supply, railroad incidents, loss of well
control, environmental pollution, and mechanical critical equipment
failures and cyber security attacks on Company infrastructure. Our
operations may also be subject to unexpected natural catastrophes
such as earthquakes, floods, 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 and Peruvian base metals 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 and business interruption,
sabotage and terrorism, marine cargo, construction, primary public
liability and employee benefits. Existing business continuity plans
may not provide protection for all the costs that arise from such
events, including clean-up costs, litigation and other claims. 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.
Additionally, any uninsured or underinsured losses could have a
material adverse effect on our financial position or results of
operations.
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. Although our efforts to reduce costs and a
number of key cost inputs are 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 and
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.
More broadly, cost and productivity pressures on our Company and
our contractors and sub-contractors may increase the risk of
industrial action and employment litigation.
These factors could lead to increased operating costs at
existing operations, interruptions or delays and could negatively
impact our operating margins and expansion plans.
Our non-operated assets and our commercial counterparties 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, litigation and regulatory
action, delays or interruptions and adversely impact our results,
prospects and reputation.
Commercial counterparties, such as our suppliers, contractors
and customers, may not comply with our HSEC standards causing
adverse reputational and legal impacts.
Breaches in, or failures of, our information technology may
adversely impact our business activities
We maintain and increasingly rely on information technology (IT)
systems, consisting of digital infrastructure, applications and
networks to support our business activities. These systems may be
subject to security breaches (e.g. cyber-crime or activists) or
other incidents (e.g. from negligence) that can result in
misappropriation of funds, increased health and safety risks to
people, disruption to our operations, environmental damage, poor
product quality, loss of intellectual property, disclosure of
commercially or personally sensitive information, legal or
regulatory breaches and liability, other costs and reputational
damage.
Evolving convergence of IT and Operational Technology (OT)
networks across industries, including ours, present additional
cyber-related risk as traditionally IT networks have been focused
on availability of service to the enterprise.
Sustainability risks
Safety, health, environmental and community impacts, incidents
or accidents 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 people, operations, reputation or licence to operate include
fire, explosion or rock fall incidents in underground mining
operations, personnel conveyance equipment failures in underground
operations, aircraft incidents, road incidents involving buses and
light vehicles, incidents between light vehicles and mobile mining
equipment, ground control failures, uncontrolled tailings
containment breaches, well blowouts, explosions or gas leaks and
accidents involving inadequate isolation, working from heights or
lifting operations.
Health
Health risks faced include fatigue, musculoskeletal illnesses
and occupational exposure to substances or agents including noise,
silica, coal mine dust, diesel exhaust particulate, nickel and
sulphuric acid mist and mental illness. 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, adversely
impact our people, reputation or licence to operate and affect the
way we conduct our operations.
Given we operate globally, we could be affected by a public
health emergency such as influenza or other infectious disease
outbreaks in any of the regions in which we operate.
Environment
Our operations by their nature have the potential to adversely
impact air quality, 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.
Environmental incidents have the potential to lead to material
adverse impacts on our people, operations, reputation or licence to
operate. These include uncontrolled tailings containment breaches,
subsidence from mining activities, escape of polluting substances
and uncontrolled releases of hydrocarbons.
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.
Climate change may adversely affect the value of our Company,
and our operations and markets
The physical and non-physical impacts of climate change may
affect our operations, productivity and the markets in which we
sell our products. This includes acute and chronic changes in
weather, policy and regulatory change, technological development
and market and economic responses. 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 completed 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 affect 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 adversely affect 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 reduce the value of fossil fuel assets.
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 affect the financial performance of our
operations.
Community
Local communities may be directly impacted by and become
dissatisfied with our operations or oppose our new development
projects, including through legal action, potentially affecting
schedules, costs and production, and in extreme cases viability and
adversely impacting our reputation and licence to operate.
Community-related risks may include community protests or civil
unrest, complaints to grievance mechanisms and civil society
activism and may cause delays or changes to proposed developments
and interruptions to existing operations. Our operations or
activities also risk the potential for adverse impacts on human
rights or breaches of other international laws or conventions.
Hydraulic fracturing
Our Onshore US operations involve hydraulic fracturing, which
involves using water, sand and a small amount of chemicals to
fracture hydrocarbon-bearing subsurface rock formations, to allow
flow of hydrocarbons into the wellbore. We depend on the use of
hydraulic fracturing techniques in our onshore US drilling and
completion programs.
In the United States, the hydraulic fracturing process is
typically regulated by relevant US state regulatory bodies.
Arkansas, Louisiana and Texas (the states in which we currently
operate) have adopted various laws and regulations, or issued
regulatory guidance, concerning hydraulic fracturing. 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.
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 released a preliminary
analysis on 30 March 2015. The EPA's Science Advisory Board (SAB)
engaged a research advisory panel to address criticism over the
study's core conclusion and that panel issued a draft report on 7
January 2016. 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 and produced a report
on 16 July 2015 identifying two areas for improvement. 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. On 30
September 2015, the US District Court for the District of Wyoming
granted a motion for a preliminary injunction that prevents
enforcement of the regulation by BLM pending litigation. 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.
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 anything of value to
government officials and representatives of state-owned
enterprises, may not prevent future potential breaches of law, or
of 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,
allegations or investigations by regulatory authorities, loss of
operating licences and/or reputational damage.
1.2 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 1.9.2 of the
Annual Report 2016. Our approach to managing these risks is
outlined below.
Principal risk area Risk management approach
---------------------------------------- -------------------------------------
Samarco dam failure The Board has spent a significant
Our potential liabilities amount of time discussing
from litigation and other Samarco and considering our
actions resulting from the approach to the Samarco dam
Samarco dam failure are subject failure.
to significant uncertainty Soon after the Samarco dam
and cannot be reliably estimated failure occurred, a sub-committee
at this time. of the Board was established
to further consider and oversee
matters relating to the Samarco
dam failure, including BHP
Billiton's support of the
recovery and response efforts,
investigation of the cause
of the dam failure and our
engagement with key stakeholders.
The Samarco sub-committee
comprises John Schubert (Chairman),
Jac Nasser, Lindsay Maxsted
and Malcolm Brinded.
Alongside the Samarco sub-committee,
the Risk and Audit Committee
and the Sustainability Committee
have continued to consider
matters relating to Samarco
as part of the ongoing duties
of those committees, including
Samarco funding and the review
of significant dams in the
portfolio.
We believe these efforts provide
a robust and comprehensive
approach for the Board to
best provide its oversight
and input, and allows appropriate
consideration to be brought
to the various aspects of
the response.
For further information on
BHP Billiton's response to
the Samarco dam failure, refer
to section 1.4 of the Annual
Report 2016.
---------------------------------------- -------------------------------------
External risks The diversification of our
Risks arise from fluctuations portfolio of commodities,
in commodity prices and demand geographies and currencies
in major markets (such as is a key strategy for reducing
China or Europe) or changes the effects of volatility.
in currency exchange rates Section 1.8.1 of the Annual
and actions by governments, Report 2016 describes external
including new regulations factors and trends affecting
and standards, and political our results and note 21 'Financial
events that impact long-term risk management' to the Financial
fiscal stability. Statements in the Annual Report
2016 outlines the Company's
financial risk management
strategy, including market,
commodity, and currency risk.
The Financial Risk Management
Committee oversees these risks
as described in sections 2.14
and 2.15 of the Annual Report
2016. We also engage with
governments and other key
stakeholders to ensure the
potential adverse impacts
of proposed fiscal, tax, resource
investment, infrastructure
access, regulatory changes
and evolving international
standards are understood and
where possible mitigated.
-------------------------------------- ---------------------------------------
Business risks Our Geoscience Centre of Excellence
Risks include the inherent manages governance and technical
uncertainty of identifying leadership for Mineral Resource
and proving reserves, adding development and Ore Reserves
and divesting assets and managing reporting as described in
our capital development projects. section 6.3.2 of the Annual
Report 2016. Our governance
over reporting of Petroleum
reserves is described in section
6.3.1 of the Annual Report
2016.
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
2.14 and 2.15 of the Annual
Report 2016. Our Project Management
function additionally seeks
to ensure that projects are
safe, predictable and competitive.
-------------------------------------- ---------------------------------------
Financial risks We seek to maintain a strong
Continued volatility in global balance sheet supported by
financial markets may adversely our portfolio risk management
impact future cash flows, strategy. As part of this
our ability to adequately strategy, the diversification
access and source capital of our portfolio reduces overall
from financial markets and cash flow volatility. Commodity
our credit rating. Volatility prices and currency exchange
may impact planned expenditures, rates are not generally hedged,
as well as the ability to and wherever possible we take
recover investments in mining, the prevailing market price.
oil and gas projects. In addition, A trial hedging program for
the commercial counterparties our shale gas operations is
(customers, suppliers, contractors an exception and reflects
and financial institutions) the inherent differences in
we transact with may, due shale gas operations in our
to adverse market conditions, portfolio. A shale gas operation
fail to meet their contractual has a short-term investment
obligations. cycle and a price responsive
supply base and hedging prices
and input costs can be used
to fix investment returns
and manage volatilities. We
use Cash Flow at Risk analysis
to monitor volatilities and
key financial ratios. Credit
limits and review processes
are required to be established
for all customers and financial
counterparties. The Financial
Risk Management Committee
oversees these as described
in sections 2.14 and 2.15
of the Annual Report 2016.
Note 21 'Financial risk management'
to the Financial Statements
in the Annual Report 2016
outlines our financial risk
management strategy.
-------------------------------------- --------------------------------------- -------------------------------------
Operational risks Operating We aim to maintain adequate
cost pressures and reduced operating margins through our
productivity could negatively strategy to own and operate
affect operating margins and large, long-life, low-cost
expansion plans. Non-operated and expandable upstream assets.
assets may not comply with The organisation's concentrated
our standards. Unexpected natural effort to reduce operating
and operational catastrophes costs and drive productivity
may adversely affect our operations. improvements has realised tangible
Breaches in IT security processes results, with a reduction in
may adversely affect the conduct controllable costs.
of our 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.
By applying our risk management
processes, we seek to 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.
BHP Billiton has identified
a number of actions that we
will take in our management
of tailings dams and joint
venture arrangements. For details
of those actions refer to section
1.4 of the Annual Report 2016.
Sustainability risks Our approach to sustainability
HSEC incidents or accidents risks is reflected in Our
may adversely affect our Charter and described in section
people or neighbouring communities, 1.11 of the Annual Report
operations and reputation 2016, including a Company-level
or licence to operate. The safety intervention that was
potential physical impacts initiated in FY2015. Our Requirements
and related responses to standards set out Group-wide
climate change may impact HSEC-related performance requirements
the value of our Company, designed to support effective
our operations and markets. management control of these
risks.
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 approach to engagement
with community stakeholders
is outlined in our minimum
organisational requirements
for Community. Operations
are also required to undertake
stakeholder identification
analysis, social impact and
opportunity assessments, community
perception surveys and human
rights impact assessments
to identify, mitigate or manage
key potential social and human
rights risks.
The Our Requirements for Risk
Management standard provides
the framework for risk management
relating to climate change
and material health, safety,
environment and community
risks. Internal audits are
conducted to test compliance
with the Our Requirements
standards 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,
competition and trade sanctions
performance requirements,
which are overseen by the
Compliance functions, as described
in section 2.16 of the Annual
Report 2016. Additionally,
the Disclosure Committee oversees
our compliance with securities
dealing obligations and continuous
and periodic disclosure obligations
as described in sections 2.14,
2.15 and 2.17 of the Annual
Report 2016.
------------------------------------ ------------------------------------------------------------------------------
2. Related party transactions
There have been no related party transactions that have taken
place during the year ended 30 June 2016 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
2016 are set out in notes 22 'Key management personnel' and 30
'Related party transactions' to the Financial Statements on pages
194 and 202 of the Annual Report 2016.
3. Directors' Responsibility Statement
The following statement which was prepared for the purposes of
the Annual Report 2016 is repeated here for the purposes of
complying with DTR 6.3.5. It relates to and is extracted from the
Annual Report 2016 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 5.1 and 5.2
of the Annual Report 2016, are in accordance with the UK Companies
Act 2006 and the Australian Corporations Act 2001, including:
(i) complying with the applicable Accounting Standards;
(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 2016 and of their performance for the year ended 30 June
2016;
(b) the financial report also complies with International
Financial Reporting Standards, as disclosed in section 5.1 of the
Annual Report 2016;
(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 8 September 2016, Jac Nasser AO, Chairman and Andrew Mackenzie,
Chief Executive Officer."
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
This information is provided by RNS
The company news service from the London Stock Exchange
END
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