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BIL 201209180005A
BHP Billiton Plc Annual Financial Report 2012
Issued by: BHP Billiton Plc
Date: 18 September 2012
To: London Stock Exchange
JSE Limited
For Release: Immediately
Contact: Elizabeth Hobley +44 (0) 20 7802 4054
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 2012
http://www.bhpbilliton.com/home/investors/reports/Documents/2012/BHPBillit
onAnnualReport2012.pdf
• Summary Review 2012
http://www.bhpbilliton.com/home/investors/reports/Documents/2012/BHPBillit
onSummaryReview2012.pdf
• Notice of Annual General Meeting 2012 - BHP Billiton Plc
http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2012/
BHPBillitonNoticeOfMeetingPlc.pdf
• Proxy Form (UK Principal Register)
• Proxy Form (South Africa Branch Register)
• Sustainability Report 2012
http://www.bhpbilliton.com/home/aboutus/sustainability/reports/Documents/20
12/BHPBillitonSustainabilityReport2012.pdf
• Form 20-F
http://www.bhpbilliton.com/home/investors/reports/Documents/2012/BHPBillit
onForm20F2012.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 2012 (page references
are to pages in the Annual Report) and should be read in conjunction with BHP
Billiton’s Final Results announcement issued on 22 August 2012. 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 2012 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.
External risks
Fluctuations in commodity prices and impacts of ongoing global economic
volatility 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 volatility. Our usual policy is to sell our products at the prevailing market
prices. The diversity provided by our broad portfolio of commodities does 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 global economic volatility following the global financial and
European sovereign debt crises has negatively affected commodity market prices
and demand. Sales into European countries generated US$8.4 billion (FY2011:
US$9.4 billion), or 11.6 per cent (FY2011: 13.1 per cent), of our revenue in the year
ended 30 June 2012. 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.
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. The appreciation in recent years
of currencies in which the majority of our operating costs are incurred, (in particular
the Australian dollar, if sustained relative to US dollar denominated commodity
prices), has and may continue to adversely impact our profit margins. Given the
dominant role of the US currency in our affairs, the US dollar is the currency in which
we present financial performance. 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. From time to time, we consider
currency protection measures appropriate in specific commercial circumstances,
subject to strict limits established by our Board. Therefore, in any particular year, our
financial results may be negatively affected by currency exchange rate fluctuations.
Reduction in Chinese demand may negatively impact our results
The Chinese market has become a significant source of global demand for
commodities. In CY2011, China represented 61 per cent of global seaborne iron ore
demand, 39 per cent of copper demand, 40 per cent of nickel demand, 43 per cent of
aluminium demand, 48 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 and price increases over the past decade. Sales into China generated
US$21.6 billion (FY2011: US$20.3 billion), or 29.9 per cent (FY2011: 28.2 per cent),
of our revenue in the year ended 30 June 2012. 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, 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 projects are 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 and financial condition.
Our operations are based on material long-term investments that anticipate long-term
fiscal stability. Following the global financial and European sovereign debt crises,
some governments face increased debt and funding obligations and have sought
additional sources of revenue and economic rent by increasing rates of taxation,
royalties or resource rent taxes such as the Minerals Resource Rent Tax (MRRT)
and Petroleum Resource Rent Tax (PRRT) extension in Australia. These may
continue 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.
The Australian Government through the Business Tax Working Group is considering
measures to reform tax law to provide relief for certain industry sectors. The basis of
any law change is a revenue neutral outcome and as such, it is possible the mining
and petroleum industries may be negatively impacted by disproportionately funding
any measures that may eventually become law. The Business Tax Working Group
will make its recommendations to the Australian government by the end of CY2012,
with any potential law change happening thereafter.
Our business could be adversely affected by new government regulations, 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 affect 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, and BHP Billiton
was among the first to return to drilling in the Gulf of Mexico, the industry now faces
more stringent permitting requirements. Delays or additional costs may occur in
receiving future permits for 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, are governed by the Part IIIA statutory framework, and either the access
seeker or BHP Billiton can refer disputed matters to the Australian Competition and
Consumer Commission for arbitration. The outcome of this process will govern
whether access will be provided and on what terms.
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.
Our Cerro Matoso Operation in Colombia operates under mining concessions that
are due to expire on 30 September 2012 and we have applied, in accordance with
the law and its contracts, for an extension of these mining concessions. If this
extension is not granted, Cerro Matoso has an underlying agreement with the
Colombian Government that grants it rights to continue mining and producing through
to 2029 under a lease arrangement, with a further extension of 15 years possible.
While our operating rights are maintained, there is no established precedent in
Colombia for bringing a reversion of title under contract and therefore the situation
remains uncertain.
These regulations are complex, difficult to predict and outside of our control and
could negatively affect our business and results.
Business risks
Failure to discover new reserves, maintain or enhance existing reserves or
develop new operations could negatively affect our future results and financial
condition
The demand for our products and production from our operations results in existing
reserves being depleted over time. As our revenues and profits are derived from our
oil and gas and minerals operations, our results and financial condition are directly
related to the success of our exploration and acquisition efforts, and our ability to
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.
Future deterioration in commodities pricing may make drilling some acreage and
existing reserves uneconomic. Our actual drilling activities and future drilling budget
will depend on drilling results, commodity prices, drilling and production costs,
availability of drilling services and equipment, lease expirations, gathering system
pipeline transportation and other infrastructure constraints, regulatory approvals and
other factors.
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.
We may not be able to successfully complete acquisitions or 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 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 acquisition projects being cancelled, delayed
or costing more than anticipated. These factors could negatively affect our future
results and financial condition.
We may not be able to attract and retain the necessary people
Our existing operations and especially our pipeline of development projects in
regions of numerous large projects, such as Western Australia, Queensland and the
United States, if 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 to attract and retain such people may adversely impact our
ability to complete projects under development on time and budget or successfully
respond to new development opportunities. The lack of short- and long-term suitable
accommodation in regional centres and townships adjacent to development projects
and community reactions to development and potential workforce fly in, fly out
arrangements may impact costs and the ability to optimise construction and
operating workforces. Skills shortages in engineering, technical service, construction
and maintenance may adversely impact the cost and schedule of current
development projects, the cost and efficiency of existing operations and our ability to
execute on development opportunities.
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, and have established a number of project hubs to provide
continuity to capital programs, 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, adversely affecting our development projects and impacting
anticipated financial returns.
Financial risks
If our liquidity and cash flow deteriorate significantly it could adversely affect
our ability to fund our major capital programs
We seek to maintain a solid ‘A’ credit rating as part of our strategy; however,
fluctuations in commodity prices and the ongoing global economic volatility, and
European sovereign debt crises, may continue to adversely impact our future cash
flows and ability to access capital from financial markets at acceptable pricing.
Despite our portfolio risk management strategies and monitoring of cash flow
volatility, if our key financial ratios and credit rating were not maintained, our liquidity
and cash reserves, interest rate costs on borrowed debt, future access to financial
capital markets and the ability to fund current and future major capital programs
could be adversely affected.
We may not recover our investments in mining and oil and gas projects
Our strategy is to maintain an asset portfolio diversified by commodity, geography
and market. Despite the benefits arising from this diversification, one or more of our
assets may be impacted by changed market or industry structures, commodity
prices, technical operating difficulties, inability to recover our mineral, oil or gas
reserves and increased operating cost levels. These may cause us to fail to recover
all or a portion of our investment in mining and oil and gas projects and may require
financial write-downs adversely impacting our financial results.
The commercial counterparties we transact with may not meet their obligations
which may negatively impact our results
We contract with a large number of commercial and financial counterparties,
including customers, suppliers and financial institutions. The ongoing global
economic volatility and European sovereign debt crises have placed strains on global
financial markets, reduced liquidity and adversely affected business conditions
generally. We maintain a ‘one book’ approach with commercial counterparties to
ensure that all credit exposures are quantified. Our existing counterparty credit
controls may not prevent a material loss due to credit exposure to a major customer
or financial counterparty. In addition, customers, suppliers, contractors or joint
venture partners may fail to perform against existing contracts and obligations. Non-
supply of key inputs, such as tyres, mining and mobile equipment 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
Operating cost pressures, reduced productivity and labour 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 have occurred and 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 operating cost increases through corresponding price increases, which
can adversely affect our operating margins. Notwithstanding our efforts to reduce
costs and a number of key cost inputs being commodity price-linked, the inability to
reduce costs and a timing lag may adversely impact our operating margins for an
extended period.
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. In some instances labour unions are
pursuing claims in the bargaining process about union access and involvement in
some areas of operational decision-making. These claims may adversely affect
workplace flexibility, productivity and costs. Industrial action in pursuit of claims
associated with the bargaining process has occurred in some businesses, in
particular our BHP Billiton Mitsubishi Alliance coal operation in Queensland,
Australia, and is likely to continue to occur as unions press for new claims as part of
the negotiation process.
A number of our operations, such as aluminium and copper, are energy or water
intensive and, as a result, the Group’s costs and earnings could be adversely
affected by rising costs or by supply interruptions. These could include the
unavailability of energy, fuel or water due to a variety of reasons, including
fluctuations in climate, significant increases in costs, inadequate infrastructure
capacity, interruptions in supply due to equipment failure or other causes and the
inability to extend supply contracts on economical terms.
These factors could lead to increased operating costs at existing operations and
could negatively impact our operating margins and expansion plans.
Unexpected natural and operational catastrophes may adversely impact our
operations
We operate extractive, processing and logistical operations in many geographic
locations both onshore and offshore. Our operational processes may be subject to
operational accidents such as port and shipping incidents, underground mine and
processing plant fire and explosion, open-cut pit wall failures, loss of power supply,
railroad incidents, loss of well control, environmental pollution and mechanical critical
equipment failures. Our key port facilities are located at Port Hedland and Hay Point
in Australia. We have 13 underground mines, including seven underground coal
mines. Our operations may also be subject to unexpected natural catastrophes such
as earthquakes, flood, hurricanes and tsunamis. Our Western Australia Iron Ore,
Queensland coal and Gulf of Mexico oil and gas operations are located in areas
subject to cyclones or hurricanes. Our Chilean copper operations are located in a
known earthquake and tsunami zone. Based on our 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.
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. Management of our non-controlled assets may not comply with our
management and operating standards, controls and procedures (including our HSEC
standards). Failure to adopt equivalent standards, controls and procedures at these
assets could lead to higher costs and reduced production and adversely impact our
results and reputation.
Breaches in our information technology security processes may adversely
impact the conduct of our business activities
We maintain global information technology (IT) and communication networks and
applications to support our business activities. Our extensive IT infrastructure and
network may experience service outages that may adversely impact the conduct of
our business activities. IT security processes protecting these systems are in place
and subject to regular monitoring and assessment, and are included as part of the
review of internal control over financial reporting. These security processes may not
prevent future malicious action or fraud by individuals, groups or organisations
resulting in the corruption of operating systems, theft of commercially sensitive data,
including commercial price outlooks, mergers and acquisitions and divestment
transactions, misappropriation of funds and disruptions to our business operations.
Sustainability risks
HSEC impacts, incidents or accidents and related regulations may adversely
affect our people, 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 safety events that may have a material adverse impact on our operations
include fire, explosion or rock fall incidents in underground mining operations,
personnel conveyance equipment failures in underground operations, aircraft
incidents, incidents involving light vehicles and mining mobile equipment, ground
control failures, well blowouts, explosions or gas leaks, isolation, working from
heights or lifting operations.
Environmental incidents that have the potential to create a material impact include
uncontrolled tailings breaches, subsidence from mining activities, escape of polluting
substances, and uncontrolled releases of hydrocarbons.
Our operations by their nature have the potential to impact biodiversity, water
resources and related ecosystem services. Changes in scientific understanding of
these impacts, regulatory requirements or stakeholder expectations may prevent or
delay project approvals and result in increased costs for mitigation, offsets or
compensatory actions.
We provide for operational closure and site rehabilitation. Our operating and closed
facilities are required to have closure plans. Changes in regulatory or community
expectations may result in the relevant plans not being adequate. This may 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 including a commitment to one per cent of pre-tax profits
invested in community programs. Notwithstanding these actions, local communities
may become dissatisfied with the impact of our operations or oppose our new
development projects, including through litigation, potentially affecting costs and
production, and in extreme cases viability. Community related risks may include
community protests or civil unrest, delays to proposed developments and inadvertent
breaches of human rights or other international laws or conventions.
Health risks faced include fatigue and occupational exposure to noise, silica,
manganese, diesel exhaust particulate, fluorides, coal tar pitch, nickel and sulphuric
acid mist. Longer-term health impacts may arise due to unanticipated workplace
exposures or historical exposures to hazardous substances by employees or site
contractors. These effects may create future financial compensation obligations.
We invest in workplace and community health programs, where indicated by risk
assessment. However, infectious diseases such as HIV and malaria may have a
material adverse impact upon our workers or on our communities, primarily in Africa.
Because we operate globally, we may be affected by potential pandemic influenza
outbreaks, such as A(H1N1) and avian flu, in any of the regions in which we operate.
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 Operation in the United States, and in August 2011, acquired
Petrohawk Energy Corporation, a US shale development company. Both businesses
include operations that involve hydraulic fracturing, an essential and common
practice in the oil and gas industry to stimulate production of natural gas and oil from
dense subsurface rock formations. Hydraulic fracturing involves using water, sand
and a small amount of chemicals to fracture the hydrocarbon-bearing rock formation
to allow flow of hydrocarbons into the wellbore. We routinely apply hydraulic
fracturing techniques in our drilling and completion programs.
Increased regulation and attention given to the hydraulic fracturing process could
lead to greater opposition to oil and gas production activities using hydraulic
fracturing techniques, including regulations that could impose more stringent
permitting, public disclosure and well construction requirements on hydraulic
fracturing operations. Additional legislation or regulation could also lead to
operational delays or increased operating costs in the production of oil and natural
gas, including from the developing shale plays, or could make it more difficult to
perform hydraulic fracturing. The adoption of any federal, state or local laws or the
implementation of regulations regarding hydraulic fracturing could potentially cause a
decrease in the completion of new oil and gas wells, increased compliance costs and
time, and potential class action claims, all of which could adversely affect our
business.
Due to the nature of our operations HSEC incidents or accidents and related
regulations may adversely affect our reputation or licence to operate.
Climate change 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 United
Kingdom 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, which commenced on 1 July 2012,
includes a fixed price on carbon emissions 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 through 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 South African
Government plans to introduce a carbon tax beginning in 2013, however the details
are not yet finalised. Carbon pricing has also been discussed as part of a broader tax
reform package in Chile.
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.
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 and specific internal controls in
relation to offers of things of value to government officials and representatives of
state owned enterprises, may not prevent future potential breaches of law,
accounting or governance practice. The BHP Billiton Code of Business Conduct,
together with our mandatory policies, such as the anti-corruption and the anti-trust
policies, 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 reputational damage.
2. Approach to risk management
We believe that the identification and management of risk is central to achieving our
corporate purpose of creating long-term shareholder value.
Our approach to risk recognises that it will manifest itself in many forms and has the
potential to impact our health and safety, environment, community, reputation,
regulatory, market and financial performance and, thereby, the achievement of our
corporate purpose.
By understanding and managing risk, we provide greater certainty and confidence for
our shareholders, employees, customers, suppliers, and for the communities in which
we operate. Successful risk management can be a source of competitive advantage.
Risks faced by the Group are managed on an enterprise-wide basis. The natural
diversification in the Group’s portfolio of commodities, geographies, currencies,
assets and liabilities is a key element in our risk management approach.
Risk management is embedded in our critical business activities, functions and
processes. Materiality and our tolerance for risk are key considerations in our
decision-making.
Risk issues are identified, analysed and assessed in a consistent manner.
Performance requirements exist for the identification, assessment, control and
monitoring of material risk issues that could threaten our corporate purpose and
business plans. These include:
• The potential for impacts on the achievement of our corporate purpose and
business plans is identified through risk assessments using approved
materiality and tolerability criteria. The severity of any risk event is assessed
according to a matrix that describes the degree of harm, injury or loss from
the most severe impact associated with that risk event, assuming reasonable
effectiveness of controls.
• A risk assessment (risk identification, risk analysis and risk evaluation) is
conducted for material risk issues.
• Risk controls are designed, implemented, operated and assessed to produce
a residual risk that is tolerable. Performance standards are established for
critical controls over material risks with supporting monitoring and verification
processes.
The Group has established processes that apply when entering or commencing new
activities in higher governance risk countries. Risk assessments and a supporting
risk management plan are required to ensure that potential reputation, legal,
business conduct and corruption-related exposures are tolerable and legislative
compliance is maintained, including relevant anti-corruption legislation and the
application of any sanctions or trade embargos.
Our risk management governance approach is described in sections 5.13.1 and 5.14
of the 2012 Group’s Annual Report.
3. Management of principal risks
The scope of our operations and the number of industries in which we operate and
engage mean that a range of factors may impact our results. Material risks that could
negatively affect our results and performance are described in section 1.5.1 of the
2012 Group’s Annual Report. Our approach to managing these risks is outlined
below.
Principal risk area Risk management approach
External risks
Risks arise from fluctuations in The diversification of our portfolio of
commodity prices and currency commodities, geographies and
exchange rates, demand changes in currencies is a key strategy for reducing
major markets (such as China or Europe) volatility. Section 3.4 of the 2012 Group’s
or actions by governments and political Annual Report describes external factors
events that impact long-term fiscal and trends affecting our results and Note
stability. 28 to the financial statements in the 2012
Group’s Annual Report outlines the
Group’s financial risk management
strategy, including market, commodity,
and currency risk. The Financial Risk
Management Committee oversees these
as described in section 5.15 of the 2012
Group’s Annual Report. We engage with
governments and other key stakeholders
to ensure the potential impacts of
proposed fiscal, tax, resource
investment, infrastructure access and
regulatory changes are understood and
where possible mitigated.
Business risks
Our continued growth creates risks We support our growth strategy through
related to identifying and proving minerals and petroleum exploration
reserves, integrating newly acquired programs which are focused on
businesses, managing our capital identifying and capturing new world-class
development projects and attracting and projects supported by exploration activity
retaining the people necessary to support adjacent to existing operations. The
our growth. Group Resource and Business
Optimisation function provides
governance and technical leadership for
resource development and Ore Reserves
reporting as described in section 2.13.2
Reserves and Resources and section 2.6
Group Resources and Business
Optimisation of the 2012 Group’s Annual
Report. Our Petroleum reserves are
described in section 2.13.1 of the 2012
Group’s Annual Report.
We have established investment
processes and tollgates that apply to all
Risk management approach
major capital and mergers and
acquisitions projects. The Investment
Committee oversees these as described
in section 5.15 of the 2012 Group’s
Annual Report. The Project Management
function additionally ensures that the
optimum framework and capabilities are
in place to deliver safe, predictable and
competitive projects. Additionally we
have established project hubs as
operating centres for the study and
execution of a pipeline of major capital
projects using a program management
approach.
Group-wide human resource processes
are established covering recruitment
planning, diversity, remuneration,
development and mobility of staff to
ensure we continue to maintain a strong
diversified global talent pool.
Financial risks
Continued volatility in global financial We seek to maintain a solid 'A' credit
markets may adversely impact future rating, supported by our portfolio risk
cash flows, the ability to adequately management strategy. As part of this
access and source capital from financial strategy, commodity prices and currency
markets and our credit rating. This may exchange rates are not hedged and,
impact planned expenditures as well as wherever possible we take the prevailing
the ability to recover investments in market price, which serves to mitigate
mining and oil and gas projects. In counterparty performance risk. We use
addition, the commercial counterparties cash flow at risk analysis to monitor
(customers, suppliers and financial volatilities and key financial ratios. Credit
institutions) we transact with may, due to limits and review processes are
established for all customers and
adverse market conditions, not meet their
financial counterparties. The Financial
obligations.
Risk Management Committee oversees
these as described in section 5.15 of the
2012 Group’s Annual Report. Note 28 to
the financial statements the 2012
Group’s Annual Report outlines our
financial risk management strategy.
Principal risk area Risk management approach
Operational risks
Operating cost pressures, reduced We seek to ensure that adequate
operating margins are maintained
productivity and labour shortages could
through our strategy to own and operate
negatively impact operating margins and
large, long-life, low-cost and expandable
expansion plans. Non-controlled assets upstream assets. We have implemented
may not comply with our standards. an Operating Model designed to deliver a
Unexpected natural and operational simple and scalable organisation,
catastrophes may adversely impact our providing a competitive advantage
operations. Breaches in information through defining work, organisation and
technology (IT) security processes may performance measurement. Defined
adversely impact the conduct of our global business processes, including
business activities. 1SAP, provide a standardised way of
working across the organisation.
Common processes generate reliable
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 non-
controlled assets to apply our standards.
Through the application of our risk
management processes, we identify
material catastrophic operational risks
and implement the critical controls and
performance requirements to maintain
control effectiveness. Business continuity
plans are 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.
We maintain appropriate IT security
devices, perimeter monitoring and mobile
device protective measures. Security
crisis management, incident
management and service continuity and
disaster recovery plans are established.
Principal risk area Risk management approach
Sustainability risks
HSEC incidents or accidents and related Our approach to sustainability risks is
regulations may adversely affect our reflected in Our BHP Billiton Charter and
people, operations and reputation or described in section 2.8. A
licence to operate. The potential physical comprehensive set of Group Level
impacts and related government Documents (GLD) set out Group-wide
regulatory responses to climate change HSEC-related performance requirements
and greenhouse effects may adversely to ensure effective management control
impact our operations and markets. of these risks.
Given that we operate in a challenging
The BHP Billiton Code of Business
global environment straddling multiple
Conduct sets out requirements related to
jurisdictions, a breach of our governance
working with integrity including dealings
processes may lead to regulatory
with government officials and third
penalties and loss of reputation.
parties. Processes and controls are in
place for the financial control over
financial reporting including under
Sarbanes-Oxley. We have established
anti-corruption and anti-trust related
performance requirements overseen by
the Legal and Compliance function. The
Disclosure Committee oversees our
compliance with securities dealing
obligations and continuous and periodic
disclosure obligations.
4. Related party transactions
There have been no related party transactions that have taken place during the year
ended 30 June 2012 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 2012 are set out in
Notes 30 ‘Key Management Personnel’ and 31 ‘Related party transactions’ to the
Financial Statements on pages 231 to 237 of the Annual Report 2012.
5. Statement of Directors’ responsibilities
“In accordance with a resolution of the Directors of the BHP Billiton Group, the
Directors declare that:
(a) in the Directors’ opinion the financial statements and notes, set out in Sections
9.1 and 9.2 are in accordance with the UK Companies Act 2006 and the
Australian Corporations Act 2001, including:
(i) Complying with the applicable Accounting Standards; and
(ii) Giving a true and fair view of the 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 2012 and of
their performance for the year ended 30 June 2012;
(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.”
Sponsor: Absa Capital (the investment banking division of Absa Bank Limited,
affiliated with Barclays)
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
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