| Wed 22 Sep 2010, 7:32 | | BIL - BHP Billiton Plc - Annual Financial Report |
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BIL
BIBLT
BIL - BHP Billiton Plc - Annual Financial Report
BHP Billiton Plc
Share code: BIL
ISIN: GB0000566504
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 2010
http://www.bhpbilliton.com/bbContentRepository/docs/bhpBillitonAnnualReport2010.
pdf
* Summary Review 2010
http://www.bhpbilliton.com/bbContentRepository/docs/bhpBillitonSummaryReview2010
.pdf
* Notice of Annual General Meeting 2010 BHP Billiton Plc
http://www.bhpbilliton.com/bbContentRepository/docs/noticeOfMeetingBhpBillitonPl
c2010.pdf
* Proxy Form (UK Principal Register)
* Proxy Form (South Africa Branch Register)
* Sustainability Report 2010
http://www.bhpbilliton.com/bbContentRepository/docs/bhpBillitonSustainabilityRep
ort2010.pdf
* Form 20-F
http://www.bhpbilliton.com/bbContentRepository/docs/2010Form20f.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 2010 (page
references are to pages in the Annual Report) and should be read in conjunction
with BHP Billiton`s Final Results announcement issued on 25 August 2010. 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 2010 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 impact 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 crisis has impacted commodity markets in
terms of lower prices, reduced demand and increased price volatility. The
ongoing uncertainty and impact on global economic growth, particularly in the
developed economies, may impact future demand and prices for commodities. The
influence of hedge and other financial investment funds participating in
commodity markets has increased in recent years, contributing to higher levels
of price volatility. 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.
Notwithstanding our financial and capital management programs the ongoing
effects of the global financial crisis may impact our future cash flows, ability
to adequately access and source capital from financial markets and our credit
rating.
Our profits 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
and negatively impact our results
We commercially contract with a large number of commercial and financial
counterparties including customers, suppliers, and financial institutions. The
global financial crisis has 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 conditions 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 impacts of the global financial crisis may impact economic
assumptions related to reserve recovery and require reserve restatements.
Reserve restatements could negatively affect our reputation, results, financial
condition 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 CY2009, China represented 56 per cent of global seaborne iron
ore demand, 36 per cent of copper demand, 35 per cent of nickel demand, 39 per
cent of aluminium demand, 42 per cent of energy coal demand and nine per cent of
oil demand. China`s demand for these commodities has been driving global
materials demand over the past decade.
The strong economic growth and infrastructure development in China of recent
years has been tempered by the global financial crisis. Sales into China
generated US$13.2 billion (FY2009: US$9.9 billion), or 25.1 per cent (FY2009:
19.7 per cent), of our revenue in the year ended 30 June 2010. A slowing in
China`s economic growth could result in lower prices and demand for our products
and therefore reduce our revenues.
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, some of 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, 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 one or more of
these risks occurs at one of our major projects, 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 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 May 2010, the Australian Government proposed a Resource Super Profits Tax
at a rate of 40 per cent on profits made from the extraction of non-renewable
resources. Subsequently, on 2 July 2010, this proposal was amended to a
Minerals Resource Rent Tax (MRRT), at a rate of 30 per cent (with a 25 per cent
extraction allowance - effectively resulted in a 22.5 per cent additional tax on
profits) for iron ore and coal, while the current Petroleum Resource Rent Tax
(PRRT) will 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, and then for the commencement date of the new tax regime to be 1
July 2012. The MRRT would operate in parallel with State and Territory royalty
regimes, and those royalties in place or scheduled at 2 May 2010 would be
creditable against the MRRT. The proposed MRRT would 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 is subject to passing by the Australian
Parliament and may differ (wholly or in part) in its final form.
With the objective of raising more funds to face the reconstruction following
the recent earthquake in Chile, the Chilean Government announced on 16 April
2010 an intention to increase the Corporate Income Tax rate (First Category Tax
- FCT) as well as changing the Mining Tax in exchange for extending the tax
invariability period available to investors, from 2017 currently in place for an
extra eight years to 2025. The current draft legislation proposes a temporary
increase of the FCT rate for two years (2010-2011) with the change in the Mining
Tax regime having been removed from the current proposed bill. Any potential tax
changes in the future if implemented may impact our financial results from
Chilean operations.
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.
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 its 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 ACCC 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.
In May 2010, in response to the oil spill from BP`s Macondo well, the United
States Government announced a deepwater drilling moratorium in the Gulf of
Mexico. There is uncertainty as to potential new permitting requirements that
may be imposed on deep water drilling. Our business could be adversely affected
by the moratorium and any new regulatory requirements.
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.
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 are delayed or cost more than anticipated. These
factors could negatively affect our financial condition and results of
operations.
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 health, safety, and environment).
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 impact our operating margins for
an extended period.
Changing industrial relations legislation such as the Australian Fair Work Act
2009 may impact workforce flexibility, productivity and costs. Labour unions may
seek to pursue claims under the new framework. Industrial action may impact our
operations resulting in lost production and revenues. Since the introduction of
the Australian Fair Work Act in 2009, increasing occurrences of low-level
industrial activity have been experienced across many Australian assets. The
additional claims relate to increased access and coverage as provided by the
legislation. If this activity continues, some negative productivity impacts may
result.
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.
Increased costs and schedule delays may impact 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.
Health, safety, environmental and community exposures and related regulations
may impact our operations and reputation negatively
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 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 materially
impact our operations include rockfall incidents in underground mining
operations, aircraft incidents, light vehicle incidents, explosions or gas
leaks, incidents involving mobile equipment, uncontrolled tailings breaches,
escape of polluting substances, community protests or civil unrest.
Longer-term health impacts may arise due to unanticipated workplace exposures by
employees or site contractors. These effects may create future financial
compensation obligations.
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.
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.
We may continue to be exposed to increased operational costs due to the costs
and lost time associated with the HIV/AIDS and malaria infection rate mainly
within our African workforce. 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.
Despite our best efforts and best intentions, there remains a risk that health,
safety, environmental and/or community incidents or accidents may occur that may
negatively impact 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 and
geographic locations 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 to maintain self-
insurance for property damage and business interruption 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 and loss of facilities more than offsetting premiums
saved and adversely affect our financial results and prospects. Third party
claims arising from these events may also 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.
The December 1997 Kyoto Protocol established a set of greenhouse gas emission
targets for developed countries that have ratified the Protocol. 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 national emissions trading scheme by 2013 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 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.
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, when activated,
require many highly skilled staff with relevant industry and technical
experience. In such a competitive environment, 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 impact activities. These shortages may
adversely impact the cost and schedule of development projects and the cost and
efficiency of existing 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 in 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. Our BHP Billiton
Code of Business Conduct, 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 2010 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
2010 are set out in Notes 30 `Key Management Personnel` and 31 `Related party
transactions` to the Financial Statements on pages 247-251 of the Annual Report
2010.
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 189 to 265 of the Annual Report 2010 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 2010 and of their
performance for the year ended 30 June 2010.
(b) the financial report also complies with International Financial Reporting
Standards, as disclosed in Note 1 to the Financial Statements on pages 196-203
of the Annual Report;
(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
Contact: Geof Stapledon +44 (0) 20 7802 4176
22 September 2010
Date: 22/09/2010 07:32:01 Produced by the JSE SENS Department.
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