ACCOUNTING SYSTEMS AND ASSURANCE

ACCT19066(HT1, 2018)ACCOUNTING SYSTEMS AND ASSURANCE
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Annual
Report
2017
Today BHP is stronger,
simpler and more
productive.
The Annual Report 2017 is available
online at bhp.com.
BHP Billiton Limited. ABN 49 004 028 077. Registered in Australia. Registered office: 171 Collins Street, Melbourne, Victoria 3000, Australia.
BHP Billiton Plc. Registration number 3196209. Registered in England and Wales. Registered office: Nova South, 160 Victoria Street London
SW1E 5LB United Kingdom. Each of BHP Billiton Limited and BHP Billiton Plc is a member of the Group, which has its headquarters in Australia.
BHP is a Dual Listed Company structure comprising BHP Billiton Limited and BHP Billiton Plc. The two entities continue to exist as separate
companies but operate as a combined Group known as BHP.
The headquarters of BHP Billiton Limited and the global headquarters of the combined Group are located in Melbourne, Australia. The
headquarters of BHP Billiton Plc are located in London, United Kingdom. Both companies have identical Boards of Directors and are run by
a unified management team. Throughout this publication, the Boards are referred to collectively as the Board. Shareholders in each company
have equivalent economic and voting rights in the Group as a whole.
In this Annual Report, the terms ‘BHP’, ‘Group’, ‘BHP Group’, ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used to refer to BHP Billiton Limited,
BHP Billiton Plc and, except where the context otherwise requires, their respective subsidiaries. Cross references refer to sections of the
Annual Report, unless stated otherwise.
Our Charter
BHP Annual Report 2017
1
Contents
1
Strategic Report
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
Chairman’s Review
Chief Executive Officer’s Report
Performance summary
BHP – At a glance
Our strategy
Our performance
Samarco
Our operating environment
People
Sustainability
Our businesses
Summary of financial performance
Performance by commodity
Other information
2
Governance at BHP
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
2.20
2.21
Governance at BHP
Board of Directors and Executive Leadership Team
Shareholder engagement
Role and responsibilities of the Board
Board membership
Chairman
Renewal and re-election
Director skills, experience and attributes
Director induction, training and development
Independence
Board evaluation
Board meetings and attendance
Board committees
Risk management governance structure
Management
Business conduct
Market disclosure
Remuneration
Directors’ share ownership
Conformance with corporate governance standards
Additional UK disclosure
3
Remuneration Report
3.1
Annual statement by the Remuneration
Committee Chairman
Remuneration policy report
Annual report on remuneration
3.2
3.3
4
5
6
8
16
20
27
30
44
47
54
68
82
92
94
96
100
101
102
103
103
104
106
107
108
109
110
121
122
123
123
123
123
124
124
126
128
134
Forward looking statements
This Annual Report contains forward looking statements, including
statements regarding trends in commodity prices and currency exchange
rates; demand for commodities; production forecasts; plans, strategies
and objectives of management; closure or divestment of certain assets,
operations or facilities (including associated costs); anticipated production
or construction commencement dates; capital costs and scheduling;
operating costs; anticipated productive lives of projects, mines
and facilities; provisions and contingent liabilities; and tax and
regulatory developments.
Forward looking statements can be identified by the use of terminology
such as ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’,
‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’ or similar words. These statements
discuss future expectations concerning the results of assets or financial
conditions, or provide other forward looking information.
These forward looking statements are not guarantees or predictions of
future performance and involve known and unknown risks, uncertainties
and other factors, many of which are beyond our control and which
may cause actual results to differ materially from those expressed in the
statements contained in this Annual Report. Readers are cautioned not
to put undue reliance on forward looking statements.
2
BHP Annual Report 2017
4
Directors’ Report
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
Review of operations, principal activities and state of affairs
Share capital and buy-back programs
Results, financial instruments and going concern
Directors
Remuneration and share interests
Secretaries
Indemnities and insurance
Employee policies
Corporate governance
Dividends
Auditors
Non-audit services
Political donations
Exploration, research and development
ASIC Instrument 2016/191
Proceedings on behalf of BHP Billiton Limited
Performance in relation to environmental regulation
Share capital, restrictions on transfer of shares
and other additional information
5
Financial Statements
5.1
5.2
5.3
5.4
5.6
5.7
Consolidated Financial Statements
BHP Billiton Plc
Directors’ declaration
Statement of Directors’ responsibilities in respect
of the Annual Report and the Financial Statements
Lead Auditor’s Independence Declaration under
Section 307C of the Australian Corporations Act 2001
Independent Auditors’ reports
Supplementary oil and gas information – unaudited
6
Additional information
6.1
6.2
6.3
6.4
6.5
6.6
Information on mining operations
Production
Resources and Reserves
Major projects
Legal proceedings
Glossary
7
Shareholder information
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
7.10
7.11
History and development
Markets
Organisational structure
Material contracts
Constitution
Share ownership
Dividends
Share price information
American Depositary Receipts fees and charges
Government regulations
Ancillary information for our shareholders
5.5
149
150
150
150
151
151
151
152
152
152
152
153
153
153
153
153
153
153
155
208
220
221
222
223
229
235
244
248
270
271
274
281
281
281
282
283
286
288
288
289
290
292
For example, our future revenues from our assets, projects or mines
described in this Annual Report will be based, in part, on the market price
of the minerals, metals or petroleum products produced, which may vary
significantly from current levels. These variations, if materially adverse,
may affect the timing or the feasibility of the development of a particular
project, the expansion of certain facilities or mines, or the continuation
of existing assets.
Other factors that may affect the actual construction or production
commencement dates, costs or production output and anticipated lives
of assets, mines or facilities include our ability to profitably produce and
transport the minerals, petroleum and/or metals extracted to applicable
markets; the impact of foreign currency exchange rates on the market
prices of the minerals, petroleum or metals we produce; activities
of government authorities in the countries where we are exploring
or developing projects, facilities or mines, including increases in taxes,
changes in environmental and other regulations and political uncertainty;
labour unrest; and other factors identified in the risk factors set out in
section 1.8.3 of this Annual Report.
Except as required by applicable regulations or by law, BHP does not
undertake to publicly update or review any forward looking statements,
whether as a result of new information or future events.
Past performance cannot be relied on as a guide to future performance.
Section 1
Strategic
Report
In this section
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
About this Strategic Report
This Strategic Report provides insight into BHP’s strategy,
operating and business model, and objectives. It describes
the principal risks BHP faces and how these risks might
affect our future prospects. It also gives our perspective
on our recent operational and financial performance.
This disclosure is intended to assist shareholders and other
stakeholders to understand and interpret the Consolidated
Financial Statements prepared in accordance with International
Financial Reporting Standards (IFRS) included in this Annual
Report. The basis of preparation of the Consolidated Financial
Statements is set out in section 5.1. We also use alternate
performance measures to explain our underlying performance;
however, these measures should not be considered as an
indication of, or as a substitute for, statutory measures as
an indicator of actual operating performance or as a substitute
for cash flow as a measure of liquidity. To obtain full details of
the financial and operational performance of BHP, this Strategic
Report should be read in conjunction with the Consolidated
Financial Statements and accompanying notes. Underlying
EBITDA is the key measure that management uses internally
to assess the performance of the Group’s segments and make
decisions on the allocation of resources.
This Strategic Report meets the requirements of the
UK Companies Act 2006 and the Operating and Financial
Review required by the Australian Corporations Act 2001.
We have excluded certain information from this Strategic Report,
to the extent permitted by United Kingdom and Australian law,
on the basis that it relates to impending developments or
matters in the course of negotiation and disclosure would be
seriously prejudicial to the interests of BHP. This is because such
disclosure could be misleading due to the fact it is premature
or preliminary in nature, relates to commercially sensitive
contracts, would undermine confidentiality between BHP
and its suppliers and clients, or would otherwise unreasonably
damage the business. The categories of information omitted
include forward looking estimates and projections prepared
for internal management purposes, information regarding
BHP’s assets and projects that is developing and susceptible
to change, and information relating to commercial contracts
and pricing modules.
1.9
1.10
1.11
1.12
1.13
1.14
Chairman’s Review
Chief Executive Officer’s Report
Performance summary
BHP – At a glance
1.4.1 Who we are
1.4.2 Where we are
Our strategy
1.5.1 Focus areas
1.5.2 Managing performance and risk
Our performance
1.6.1 Non-financial KPIs
1.6.2 Financial KPIs and performance overview
1.6.3 Commodity performance overview
Samarco
Our operating environment
1.8.1 Market factors and trends
1.8.2 Exploration
1.8.3 Principal risks
1.8.4 Management of principal risks
People
1.9.1 Supporting our culture
1.9.2 Inclusion and diversity
1.9.3 Our people policies
1.9.4 Employees and contractors
1.9.5 Employee relations
Sustainability
1.10.1 Our sustainability approach
1.10.2 Operating with ethics and integrity
1.10.3 Health and safety
1.10.4 Society
1.10.5 Environment
1.10.6 Climate change
Our businesses
1.11.1 Minerals Australia
1.11.2 Minerals Americas
1.11.3 Petroleum
1.11.4 Marketing and Supply
Summary of financial performance
1.12.1 Group overview
1.12.2 Financial results
1.12.3 Debt and sources of liquidity
1.12.4 Alternate performance measures
1.12.5 Definition and calculation of alternate
performance measures
1.12.6 Definition and calculation of principal factors
Performance by commodity
1.13.1 Petroleum
1.13.2 Copper
1.13.3 Iron Ore
1.13.4 Coal
1.13.5 Other assets
Other information
Section 1 of this Annual Report 2017 constitutes our Strategic
Report 2017. References to sections beyond section 1 are
references to sections in this Annual Report 2017. Shareholders
may obtain a hard copy of the Annual Report free of charge
by contacting our Share Registrars, whose details are set out
in our Corporate Directory at the end of this Annual Report.
BHP Annual Report 2017
3
Strategic Report
1.1
Governance at BHP
Remuneration Report
Directors’ Report
Financial Statements
Additional information
Chairman’s Review
‘After several years of considered
and deliberate effort, BHP is stronger,
simpler and more productive.’
Ken MacKenzie
Chairman
Dear Shareholder,
It is an honour and a privilege to be able to write this letter as the new Chairman of BHP. At the outset, I want
to acknowledge the contribution of my predecessor, Jac Nasser, who has led the Board for the past seven years.
I thank Jac for his outstanding service to the Board and the Group during his tenure. While we will miss his
strong leadership and wise counsel, he leaves a lasting legacy at BHP.
As incoming Chairman, I spent much of the past three months engaging with shareholders and other stakeholders
around the world in order to better understand their perspectives. I plan to engage with investors on a regular basis.
Since I joined the Board in September last year, I have also taken the opportunity to visit many of our locations
around the world to gain a better understanding of BHP from the front line. I have visited Western Australia Iron
Ore in the Pilbara, coal operations in Queensland, the Jansen Potash Project in Canada, Onshore and Offshore
petroleum operations in the United States and copper assets in Chile. This has been a rewarding experience
and has reinforced to me the strength and potential of BHP to create long-term value for our shareholders.
BHP’s first-class assets generate significant amounts of cash in almost all phases of the commodity cycle, and
the way we allocate that cash going forward is going to be an important determinant of how much shareholder
value is created. The Board strongly supports the capital allocation framework that your CEO, Andrew Mackenzie,
established at the beginning of 2016. It is however a framework, and since its inception, the Board and management
team have been working together to strengthen its application. This work is ongoing.
Your Board recognises the importance of cash returns to shareholders. The dividend policy provides for a minimum
50 per cent payout of Underlying attributable profit at every reporting period. For FY2017, the Board determined
a final dividend of 43 US cents per share, which is covered by free cash flow generated in the current period.
The final dividend comprises the minimum payout per share plus an additional amount of 10 US cents per share.
Strict adherence to our capital allocation framework balances value creation through capital investment, cash
returns to shareholders and balance sheet strength in a transparent and consistent manner.
The Board has continued to focus on responding to the tragedy at Samarco. A review of the non-operated
minerals joint ventures was conducted in FY2017 and we have implemented a number of actions identified as
part of that review. We have developed a global standard which defines the requirements for managing BHP’s
interest in our non-operated minerals joint ventures. These minimum requirements include a framework for
identification and management of risks to BHP from the non-operated joint ventures, which is consistent
with the risk management framework for identifying and managing risks across BHP. More information can
be found in section 1.7.
We take a structured and rigorous approach to Board succession planning, having regard to the skills, experience
and attributes required to effectively govern and manage risk within BHP, so that we have the right balance on the
Board and the Board continues to be fit-for-purpose.
During the year, John Schubert and Pat Davies retired from the Board. In addition, Malcolm Brinded and Grant
King have decided that they will not stand for election at the 2017 Annual General Meetings. I thank all of these
retiring Directors for their service to BHP and wish them the very best.
In line with our planned approach to Board succession, Terry Bowen and John Mogford were appointed to the
Board as Non-executive Directors with effect from 1 October 2017. Both have extensive executive experience
which will enable them to make significant contributions to the BHP Board.
After several years of considered and deliberate effort, BHP is stronger, simpler and more productive. BHP has
a world class management team, led by Andrew Mackenzie, and I look forward to supporting them in our pursuit
of long-term value creation for all our shareholders.
Thank you for your continued support of BHP.
Ken MacKenzie
Chairman
4
BHP Annual Report 2017
Shareholder information
1.2
Chief Executive Officer’s Report
1
Strategic Report
‘Over the past five years, we have
laid the foundations to significantly
improve returns and grow value.’
Andrew Mackenzie
Chief Executive Officer
Dear Shareholder,
To meet the challenges of today, we must think in decades and generations. BHP’s ability to plan, work and invest
for the long term has always been our competitive advantage.
Over the past five years, we have laid the foundations to significantly improve returns and grow value. The benefits
of this deliberate path are clear in our FY2017 results.
Safety is, and always will be, our highest priority. In the last 12 months, tragically, two of our colleagues died at
work – one at our Escondida mine in Chile in October 2016 and one at the Goonyella Riverside mine in Australia
in August 2017. I offer my sincere condolences to the families, friends and colleagues of the two team members
who lost their lives.
The most important job our people have, myself included, is to make sure our team goes home safe at the end
of each day. While our safety performance has improved in terms of total recordable injury frequency (down to
4.2 per million hours worked), we have renewed our efforts to help our people understand the risks and critical
controls that must be in place to protect the health and safety of everyone who works with BHP.
Our new five-year sustainability performance targets came into effect 1 July 2017. These targets are a public
statement to our stakeholders about our commitment to sustainability and are consistent with our commitment
to the Paris Agreement and the United Nations Sustainable Development Goals. They are also at the heart of how
we work at BHP – we are determined to make a positive difference through our performance.
Our FY2017 financial and operational results were strong. All our operated assets were free cash flow positive
and delivered a total free cash flow of US$12.6 billion. We used this cash to strengthen the balance sheet
and return US$4.4 billion to you, our shareholders.
We have achieved a great deal over the past year, but we will not stand still. We are committed to maximising
cash flow, maintaining capital discipline and improving value and returns.
We will deliver consistent and transparent application of our capital allocation framework, which includes cash
returns to shareholders.
Our strong performance in FY2017 was achieved thanks to the hard work and passion of the people of BHP.
It is a testament to what we can all achieve when we come together as a team of teams.
We know that the most diverse teams are those who perform the best – our data tells us this. That’s why we
were proud to announce at last year’s Annual General Meetings our aspirational goal to achieve gender balance
by FY2025. BHP has made great progress in 12 months, but we know we still have a long way to go.
The past financial year has taught us many things, but especially this – the world needs people who think boldly,
think creatively and bring the best of themselves to what they do. It needs people who think big. For corporations
like BHP, it is up to us to shape change for the better, through innovation, productivity and technology. It is our
responsibility to have a voice and be transparent.
Thank you to our people, shareholders, suppliers, customers and host communities who work with us. Together,
we work to improve the lives of millions of people across the world and drive global economic growth.
I also extend my …
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