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BIL
BIBLT
BIL - BHP Billiton Plc - Annual Financial Report
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
Issued by: BHP Billiton Plc
Date: 21 September 2011
To: London Stock Exchange
JSE Limited
For Release: Immediately
Contact: Geof Stapledon +44 (0) 20 7802 4176
BHP Billiton Plc - Annual Financial Report
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.hemscott.com/nsm.do
* Annual Report 2011
http://www.bhpbilliton.com/home/investors/reports/Documents/2011/BHPBillitonAnnu
alReport2011.pdf
* Summary Review 2011
http://www.bhpbilliton.com/home/investors/reports/Documents/2011/BHPBillitonSumm
aryReview2011.pdf
* Notice of Annual General Meeting 2011 BHP Billiton Plc
http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2011/NoticeO
fMeetingBHPBillitonPlc2011.pdf
* Proxy Form (UK Principal Register)
* Proxy Form (South Africa Branch Register)
* Sustainability Report 2011
http://www.bhpbilliton.com/home/aboutus/sustainability/reports/Documents/2011/BH
PBillitonSustainabilityReport 2011.pdf
* Form 20-F
http://www.bhpbilliton.com/home/investors/reports/Documents/2011/Form20F2011.pdf
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 2011 (page
references are to pages in the Annual Report) and should be read in conjunction
with BHP Billiton`s Final Results announcement issued on 24 August 2011. 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 2011 in full.
1. Principal risks and uncertainties
We believe that, because of the international scope of our operations and the
industries in which we are engaged, there are numerous factors which may have an
effect on our results and operations. The following describes the material risks
that could affect the BHP Billiton Group.
Fluctuations in commodity prices and impacts of the global financial crisis may
negatively affect our results
The prices we obtain for our oil, gas, minerals and other commodities are
determined by, or linked to, prices in world markets, which have historically
been subject to substantial variations. The Group`s usual policy is to sell its
products at the prevailing market prices. The diversity provided by the Group`s
broad portfolio of commodities may not fully insulate the effects of price
changes. Fluctuations in commodity prices can occur due to sustained price
shifts reflecting underlying global economic and geopolitical factors, industry
demand and supply balances, product substitution and national tariffs. The
ongoing effects of the global financial and European sovereign debt crises have
affected commodity market prices, demand and volatility. The ongoing uncertainty
and impact on global economic growth, particularly in the developed economies,
may adversely affect future demand and prices for commodities. The impact of
potential longer-term sustained price shifts and shorter-term price volatility
creates the risk that our financial and operating results and asset values will
be materially and adversely affected by unforeseen declines in the prevailing
prices of our products.
We seek to maintain a solid `A` credit rating as part of our strategy; however,
fluctuations in commodity prices and the ongoing effects of the global financial
and European sovereign debt crises may adversely impact our future cash flows,
ability to adequately access and source capital from financial markets and our
credit rating.
Our financial results may be negatively affected by currency exchange rate
fluctuations
Our assets, earnings and cash flows are influenced by a wide variety of
currencies due to the geographic diversity of the countries in which we operate.
Fluctuations in the exchange rates of those currencies may have a significant
impact on our financial results. The US dollar is the currency in which the
majority of our sales are denominated. Operating costs are influenced by the
currencies of those countries where our mines and processing plants are located
and also by those currencies in which the costs of imported equipment and
services are determined. The Australian dollar, South African rand, Chilean
peso, Brazilian real and US dollar are the most important currencies influencing
our operating costs. Given the dominant role of the US currency in our affairs,
the US dollar is the currency in which we present financial performance. It is
also the natural currency for borrowing and holding surplus cash. We do not
generally believe that active currency hedging provides long-term benefits to
our shareholders. We may consider currency protection measures appropriate in
specific commercial circumstances, subject to strict limits established by our
Board. Therefore, in any particular year, currency fluctuations may have a
significant impact on 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 customers, suppliers, and financial institutions. The global financial
and European sovereign debt crises have placed strains on global financial
markets, reduced liquidity and impacted business conditions generally. Our
existing counterparty credit controls may not prevent a material loss due to
credit exposure to a major customer or financial counterparty. In addition,
customers, suppliers, contractors or joint venture partners may fail to perform
against existing contracts and obligations. Non-supply of key inputs or
equipment may unfavourably impact our operations. Reduced liquidity and
available sources of capital in financial markets may impact the cost and
ability to fund planned investments. These factors could negatively affect our
financial condition and results of operations.
Failure to discover new reserves, maintain or enhance existing reserves or
develop new operations could negatively affect our future results and financial
condition
The increased demand for our products and increased production rates from our
operations in recent years has resulted in existing reserves being depleted at
an accelerated rate. As our revenues and profits are related to our oil and gas
and minerals operations, our results and financial condition are directly
related to the success of our exploration and acquisition efforts, and our
ability to replace existing reserves. 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 new reserves, enhance
existing 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.
There are numerous uncertainties inherent in estimating ore and oil and gas
reserves, and geological, technical and economic assumptions that are valid at
the time of estimation may change significantly when new information becomes
available. The uncertain global financial outlook may affect economic
assumptions related to reserve recovery and require reserve restatements.
Reserve restatements could negatively affect our results and prospects.
Reduction in Chinese demand may negatively impact our results
The Chinese market has become a significant source of global demand for
commodities. In CY2010, China represented 59 per cent of global seaborne iron
ore demand, 39 per cent of copper demand, 38 per cent of nickel demand, 41 per
cent of aluminium demand, 42 per cent of energy coal demand and 10 per cent of
oil demand. China`s demand for these commodities has been driving global
materials demand over the past decade.
Sales into China generated US$20.3 billion (FY2010: US$13.2 billion), or 28.2
per cent (FY2010: 25.1 per cent), of our revenue in the year ended 30 June 2011.
A slowing in China`s economic growth could result in lower prices and demand for
our products and negatively impact our results.
In response to its increased demand for commodities, China is increasingly
seeking strategic self-sufficiency in key commodities, including investments in
existing businesses or new developments in other countries. These investments
may adversely impact future commodity demand and supply balances and prices.
Actions by governments or political events in the countries in which we operate
could have a negative impact on our business
We have operations in many countries around the globe, which have varying
degrees of political and commercial stability. We operate in emerging markets,
which may involve additional risks that could have an adverse impact upon the
profitability of an operation. These risks could include terrorism, civil
unrest, nationalisation, renegotiation or nullification of existing contracts,
leases, permits or other agreements, restrictions on repatriation of earnings or
capital and changes in laws and policy, as well as other unforeseeable risks.
Risks relating to bribery and corruption may be prevalent in some of the
countries in which we operate. If any of our major projects is affected by one
or more of these risks, it could have a negative effect on the operations in
those countries, as well as the Group`s overall operating results, financial
condition and reputation.
Our operations are based on material long-term investments that anticipate long-
term fiscal stability. Following the global financial crisis some governments
face increased debt and funding obligations and may seek additional sources of
revenue and economic rent by increasing rates of taxation, royalties or resource
rent taxes to levels that are globally uncompetitive to the resource industry.
Such taxes may negatively impact the financial results of existing businesses
and reduce the anticipated future returns and overall level of prospective
investment in those countries.
On 2 July 2010, the Australian Government proposed a Minerals Resource Rent Tax
(MRRT), at a rate of 30 per cent (with a 25 per cent extraction allowance -
effectively resulting in a 22.5 per cent additional tax on profits) for
Australian iron ore and coal operations, while the current Petroleum Resource
Rent Tax (PRRT) is proposed to be extended to all Australian oil and gas
projects, including the North West Shelf. Legislation is proposed to be
introduced into parliament in late CY2011, ahead of the proposed 1 July 2012
commencement date. The MRRT would operate in parallel with State and Territory
royalty regimes, with all current and future royalties fully creditable against
the MRRT. The proposed MRRT and PRRT extension will increase the effective tax
rate of Australian coal and iron ore operations and the North West Shelf
project. This could have a negative effect on the operating results of the
Group`s Australian operations. The MRRT and PRRT extension is subject to the
passing of legislation by the Australian Parliament, and the final legislation
may differ (wholly or in part) in its final form from current expectations.
Our business could be adversely affected by new government regulation, such as
controls on imports, exports and prices. Increasing requirements relating to
regulatory, environmental and social approvals can potentially result in
significant delays in construction and may adversely impact upon the economics
of new mining and oil and gas projects, the expansion of existing operations and
results of our operations.
We have oil and gas operations located in the Gulf of Mexico region of the
United States. In October 2010, the United States Government lifted the
deepwater drilling moratorium in the Gulf of Mexico initially put in place in
May 2010 in response to the oil spill from BP`s Macondo well. Although the
moratorium was lifted, the industry now faces more stringent permitting
requirements. Despite our management processes, delays or additional costs may
occur in receiving future permits and the conduct of deepwater drilling
activities in the Gulf of Mexico.
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. These may adversely impact the efficient
operations and expansion of our businesses. On 30 June 2010, the Australian
Competition Tribunal granted declaration of BHP Billiton`s Goldsworthy rail
line, but rejected the application for declaration of our Newman rail line under
Part IIIA of the Trade Practices Act. Following the tribunal`s decision, access
seekers may now negotiate for access to the Goldsworthy railway. These
negotiations, and the availability and terms of access, would be governed by the
Part IIIA statutory framework, and either the access seeker or BHP Billiton
could refer disputed matters to the Australian Competition and Consumer
Commission for arbitration. The outcome of this process would govern whether
access would be provided and on what terms.
In South Africa, the Mineral and Petroleum Resources Development Act (2002)
(MPRDA) came into effect on 1 May 2004. The law provides for the conversion of
existing mining rights (so called `Old Order Rights`) to rights under the new
regime (`New Order Rights`) subject to certain undertakings to be made by the
company applying for such conversion. The Mining Charter requires that mining
companies achieve 15 per cent ownership by historically disadvantaged South
Africans of South African mining assets by 1 May 2009 and 26 per cent ownership
by 1 May 2014. If we are unable to convert our South African mining rights in
accordance with the MPRDA and the Mining Charter, we could lose some of those
rights. Where New Order Rights are obtained under the MPRDA, these rights may
not be equivalent to the Old Order Rights in terms of duration, renewal, rights
and obligations.
We operate in several countries where ownership of land is uncertain and where
disputes may arise in relation to ownership. In Australia, the Native Title Act
(1993) provides for the establishment and recognition of native title under
certain circumstances. In South Africa, the Extension of Security of Tenure Act
(1997) and the Restitution of Land Rights Act (1994) provide for various
landholding rights. Such legislation could negatively affect new or existing
projects.
These regulations are complex, difficult to predict and outside of our control,
and could negatively affect our business and results.
We may not be able to successfully integrate our acquired businesses
We have grown our business in part through acquisitions. We expect that some of
our future growth will stem from acquisitions. There are numerous risks
encountered in business combinations. These include adverse regulatory
conditions and obligations, commercial objectives not achieved due to minority
interests, unforeseen liabilities arising from the acquired businesses,
retention of key staff, sales revenues and the operational performance not
meeting our expectations, anticipated synergies and cost savings being delayed
or not being achieved, uncertainty in sales proceeds from planned divestments,
and planned expansion projects being delayed or costing more than anticipated.
These factors could negatively affect our future results and financial
condition.
Our human resource talent pool may not be adequate to support our growth
Our existing operations and especially our pipeline of development projects in
regions of numerous large projects, such as Western Australia and Queensland,
when activated, require many highly skilled staff with relevant industry and
technical experience. In the competitive labour markets that exist in these
regions, the inability of the Group and industry to attract and retain such
people may adversely impact our ability to adequately meet demand in projects.
Skills shortages in engineering, technical service, construction and maintenance
may adversely affect activities. These shortages may adversely impact the cost
and schedule of development projects and the cost and efficiency of existing
operations.
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, we may underestimate the cost or time required to
complete a project. 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
impacting anticipated financial returns.
We may not recover our investments in mining and oil and gas projects
Our operations 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
impact the ability for assets to recover their historical investment and may
require financial write-downs adversely impacting our financial results.
Our non-controlled assets may not comply with our standards
Some of our assets are controlled and managed by joint venture partners or by
other companies. Some joint venture partners may have divergent business
objectives which may impact business and financial results. Management of our
non-controlled assets may not comply with our management and operating
standards, controls and procedures (including our health, safety, and
environment 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.
Operating cost pressures and shortages could negatively impact our operating
margins and expansion plans
Increasing cost pressures and shortages in skilled personnel, contractors,
materials and supplies that are required as critical inputs to our existing
operations and planned developments may occur across the resources industry. As
the prices for our products are determined by the global commodity markets in
which we operate, we may not have the ability to offset these cost increases
resulting in operating margins being reduced. 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. Our Australian- based operations may continue to
be affected by the Australian Fair Work Act 2009 as labour agreements expire and
businesses are required to negotiate labour agreements with unions. There is
some evidence that labour unions are increasingly likely to pursue claims in the
bargaining process about union access and involvement in operational decision-
making relating to the implementation of change. These claims may adversely
affect workplace flexibility, productivity and costs. Industrial action in
pursuit of claims associated with the bargaining process has occurred in a
number of businesses and is likely to continue to occur as unions press for new
claims as part of the negotiation around new agreements.
A number of our operations are energy or water intensive and, as a result, the
Group`s costs and earnings could be adversely affected by rising costs or by
supply interruptions. These could include the unavailability of energy, fuel or
water due to a variety of reasons, including fluctuations in climate,
significant increases in costs, inadequate infrastructure capacity,
interruptions in supply due to equipment failure or other causes and the
inability to extend supply contracts on economical terms.
These factors could lead to increased operating costs at existing operations and
could negatively impact our operating margins and expansion plans.
Health, safety, environmental and community incidents or accidents and related
regulations may adversely affect our operations and reputation or licence to
operate
We are a major producer of carbon-related products such as energy and
metallurgical coal, oil, gas, and liquefied natural gas. Our oil and gas
operations are both onshore and offshore.
The nature of the industries in which we operate means that many of our
activities are highly regulated by health, safety and environmental laws. As
regulatory standards and expectations are constantly developing, we may be
exposed to increased litigation, compliance costs and unforeseen environmental
rehabilitation expenses.
Potential health, safety, environmental and community events that may have a
material adverse impact on our operations include rockfall incidents in
underground mining operations, aircraft incidents, light vehicle incidents, well
blowouts, explosions or gas leaks, incidents involving mobile equipment,
uncontrolled tailings breaches, escape of polluting substances, uncontrolled
releases of hydrocarbons, human rights breaches and community protests or civil
unrest.
Longer-term health impacts may arise due to unanticipated workplace exposures or
historical exposures to employees or site contractors. These effects may create
future financial compensation obligations.
We may continue to be exposed to increased operational costs due to the costs
and lost time associated with infectious diseases such as HIV/AIDS and malaria
mainly within our African workforce and the increasing global burden of chronic
disease. Because we operate globally, we may be affected by potential pandemic
influenza outbreaks, such as A(H1N1) and avian flu, in any of the regions in
which we operate.
Legislation requiring manufacturers, importers and downstream users of chemical
substances, including metals and minerals, to establish that the substances can
be used without negatively affecting health or the environment may impact our
operations and markets. These potential compliance costs, litigation expenses,
regulatory delays, rehabilitation expenses and operational costs could
negatively affect our financial results.
During FY2011, BHP Billiton acquired Chesapeake Energy Corporation`s interests
in the Fayetteville Shale operation. On 14 July 2011, BHP Billiton announced an
agreement to acquire Petrohawk Energy Corporation, an independent oil and
natural gas company engaged in the exploration, development and production of US
shale gas, and on 21 August 2011, we announced that the tender offer had been
completed successfully. Both businesses include operations which involve
hydraulic fracturing - a process of pumping water, sand and a small amount of
chemical additives into the shale formation to fracture the rock and release the
resource. In response to expressed health and environmental concerns, various
states in which shale operations occur have recently adopted disclosure
regulations requiring companies to disclose the chemicals used in the fracturing
operations. Additionally, some states have adopted, and other states are
considering adopting, regulations that could restrict hydraulic fracturing in
certain circumstances. Additional costs may result from more demanding
regulatory requirements and potential class action claims.
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 impact financial provisioning and costs at the affected operations.
We contribute to the communities in which we operate by providing skilled
employment opportunities, salaries and wages, taxes and royalties and community
development programs. Notwithstanding these actions, local communities may
become dissatisfied with the impact of our operations, potentially affecting
costs and production, and in extreme cases viability.
Despite our best efforts and best intentions, there remains a risk that health,
safety, environmental and/or community incidents or accidents and related
regulations may adversely affect our reputation or licence to operate.
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 operational processes may be subject to
operational accidents such as port and shipping incidents, fire and explosion,
pitwall failures, loss of power supply, railroad incidents, loss of well
control, environmental pollution and mechanical failures. Our operations may
also be subject to unexpected natural catastrophes such as earthquakes, flood,
hurricanes and tsunamis. Based on our claims, insurance premiums and loss
experience, our risk management approach is not to purchase insurance for
property damage, business interruption and construction related risk exposures.
Existing business continuity plans may not provide protection for all of the
costs that arise from such events. The impact of these events could lead to
disruptions in production, increased costs and loss of facilities more than
offsetting premiums saved which would adversely affect our financial results and
prospects. Third party claims arising from these events may exceed the limit of
liability insurance policies we have in place.
Climate change and greenhouse effects may adversely impact our operations and
markets
Carbon-based energy is a significant input in a number of the Group`s mining and
processing operations and we have significant sales of carbon-based energy
products.
A number of governments or governmental bodies have introduced or are
contemplating regulatory change in response to the impacts of climate change.
Under the December 2009 Copenhagen Accord, developed countries established
individual greenhouse gas targets and developing countries established national
mitigation actions. The European Union Emissions Trading System (EU ETS), which
came into effect on 1 January 2005, has had an impact on greenhouse gas and
energy-intensive businesses based in the EU. Our Petroleum assets in the UK are
currently subject to the EU ETS, as are our EU based customers. Elsewhere, there
is current and emerging climate change regulation that will affect energy
prices, demand and margins for carbon intensive products. The Australian
Government`s plan of action on climate change includes the introduction of a
fixed price on carbon emissions beginning 1 July 2012 and converting to an
emissions trading scheme after three years, and a mandatory renewable energy
target of 20 per cent by the year 2020. From a medium to long-term perspective,
we are likely to see some changes in the cost position of our greenhouse-gas-
intensive assets and energy-intensive assets as a result of regulatory impacts
in the countries in which we operate. These proposed regulatory mechanisms may
impact our operations directly or indirectly via our suppliers and customers.
Inconsistency of regulations particularly between developed and developing
countries may also change the competitive position of some of our assets.
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.
The physical impacts of climate change on our operations are highly uncertain
and will be particular to the geographic circumstances. These may include
changes in rainfall patterns, water shortages, rising sea levels, increased
storm intensities and higher average temperature levels. These effects may
adversely impact the productivity and financial performance of our operations.
Breaches in our information technology (IT) security processes may adversely
impact the conduct of our business activities
We maintain global IT and communication networks and applications to support our
business activities. IT security processes protecting these systems are in place
and subject to assessment as part of the review of internal control over
financial reporting. These processes may not prevent future malicious action or
fraud by individuals or groups, resulting in the corruption of operating
systems, theft of commercially sensitive data, misappropriation of funds and
disruptions to our business operations.
A breach of our governance processes may lead to regulatory penalties and loss
of reputation
We operate in a global environment straddling multiple jurisdictions and complex
regulatory frameworks. Our governance and compliance processes, which include
the review of internal control over financial reporting, may not prevent future
potential breaches of law, accounting or governance practice. The BHP Billiton
Code of Business Conduct, together with our anti-bribery and corruption, and
anti-trust standards may not prevent instances of fraudulent behaviour and
dishonesty nor guarantee compliance with legal or regulatory requirements. This
may lead to regulatory fines, litigation, loss of operating licences or loss of
reputation.
2. Related party transactions
There have been no related party transactions that have taken place during the
year ended 30 June 2011 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
2011 are set out in Notes 30 `Key Management Personnel` and 31 `Related party
transactions` to the Financial Statements on pages 219-223 of the Annual Report
2011.
3. Statement of Directors` responsibilities
"In accordance with a resolution of the Directors of the BHP Billiton Group, the
Directors declare that:
(a) in the Directors` opinion, the financial statements and notes, set out on
pages 161 to 238 are in accordance with the United Kingdom 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 financial position 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 2011 and of their
performance for the year ended 30 June 2011;
(b) the financial report also complies with International Financial Reporting
Standards, as disclosed in note 1;
(c) the Directors` Report includes a fair review of the development and
performance of the business and the financial position of the BHP Billiton Group
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that the Group
faces; and
(d) in the Directors` opinion there are reasonable grounds to believe that each
of the BHP Billiton Group, BHP Billiton Limited and BHP Billiton Plc will be
able to pay its debts as and when they become due and payable."
BHP Billiton Plc Registration number 3196209
Registered in England and Wales
Registered Office: Neathouse Place London SW1V 1BH United Kingdom
A member of the BHP Billiton Group which is headquartered in Australia
Sponsor: Absa Capital (the investment banking division of Absa Bank Limited,
affiliated with Barclays Capital)
Date: 21/09/2011 07:05:08 Produced by the JSE SENS Department.
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