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BHP Billiton Annual Report 2015 Resourcing global growth Annual Report 2015Our Charter Our purpose is to create long-term shareholder value through the discovery, We are BHP Billiton, acquisition, development and marketing of natural resources. a leading global Our strategy is to own and operate large, long-life, low-cost, expandable, resources company. upstream assets diversified by commodity, geography and market. Our Values Sustainability Putting health and safety first, being environmentally responsible and supporting our communities. Integrity Doing what is right and doing what we say we will do. Respect Embracing openness, trust, teamwork, diversity and relationships that are mutually beneficial. Performance Achieving superior business results by stretching our capabilities. Simplicity Focusing our eff orts on the things that matter most. Accountability Defining and accepting responsibility and delivering on our commitments. We are successful when: Our people start each day with a sense of purpose and end the day with a sense of accomplishment. Our communities, customers and suppliers value their relationships with us. Our asset portfolio is world-class and sustainably developed. Our operational discipline and financial strength enables our future growth. Our shareholders receive a superior return on their investment. Andrew Mackenzie Chief Executive O icer ff BHP Billiton Limited. ABN 49 004 028 077. Registered in Australia. Registered off ice: 171 Collins Street, Melbourne, Victoria 3000, Australia. BHP Billiton Plc. Registration number 3196209. Registered in England and Wales. Registered off ice: Neathouse Place, London SW1V 1LH, United Kingdom. Each of BHP Billiton Limited and BHP Billiton Plc is a member of the BHP Billiton Group, which is headquartered in Australia. BHP Billiton 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 Billiton. The headquarters of BHP Billiton Limited and the global headquarters of the combined BHP Billiton Group are located in Melbourne, Australia. BHP Billiton Plc is 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 BHP Billiton Group as a whole. Throughout this Annual Report, the terms BHP Billiton, the Company and the Group refer to the combined group, including both BHP Billiton Limited and subsidiary companies and BHP Billiton Plc and subsidiary companies.1 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report Contents 1 Strategic Report 3 1.1 Chairman’s Review 4 1.9 Remuneration 27 1.10 Key performance indicators 28 1.2 Chief Executive Officer’s Report 5 1.11 Summary of consolidated performance 30 1.3 Our Company 6 1.12 Our Businesses 35 1.4 BHP Billiton locations 11 1.13 Our people 46 1.5 Strategy and business model 12 1.14 Sustainability 50 1.6 Strategic priorities 16 1.15 Additional information 59 1.7 Management of risk 20 1.8 Corporate governance 26 2 Business overview 71 2.1 Business Groups 72 2.2 Production 95 2.1.1 Petroleum and Potash Business 72 2.2.1 Petroleum 95 2.1.2 Copper Business 80 2.2.2 Minerals 96 2.1.3 Iron Ore Business 83 2.3 Reserves and resources 100 2.1.4 Coal Business 87 2.3.1 Petroleum reserves 100 2.1.5 Other assets 91 2.3.2 Mineral Resources and Ore Reserves 106 2.1.6 Marketing 93 2.4 Major projects 126 2.1.7 Discontinued operations 94 2.5 Business performance 127 3 Corporate Governance Statement 133 3.1 Governance at BHP Billiton 134 3.12 Board meetings and attendance 149 3.2 Boar d of Directors and Group 3.13 Director re-election 149 Management Committee 136 3.14 Board committees 150 3.3 Shareholder engagement 141 3.15 Risk management governance structure 159 3.4 Role and responsibilities of the Board 142 3.16 Management 160 3.5 Board membership 142 3.17 Business conduct 161 3.6 Chairman 143 3.18 Market disclosure 162 3.7 Senior Independent Director 143 3.19 Remuneration 162 3.8 Dir ector skills, experience and attributes 143 3.20 Directors’ share ownership 162 3.9 Dir ector induction, training and development 145 3.21 Conf ormance with corporate governance standards 162 3.10 Independence 147 3.22 Additional UK disclosure 163 3.11 Board evaluation 148 4 Remuneration Report 164 4.1 Annual st atement by the Remuneration 4.3 Remuneration policy report 167 Committee Chairman 165 4.4 Annual report on remuneration 174 4.2 Introduction to the Remuneration Report 166 5 Directors’ Report 197 5.1 R eview of operations, principal 5.11 Auditors 201 activities and state of affairs 198 5.12 Non-audit services 201 5.2 Share capital and buy-back programs 199 5.13 Political donations 202 5.3 R esults, financial instruments 5.14 Exploration, research and development 202 and going concern 200 5.15 Class Order 202 5.4 Directors 200 5.16 Pr oceedings on behalf of BHP Billiton Limited 202 5.5 Remuneration and share interests 200 5.17 Directors’ shareholdings 202 5.6 Secretaries 200 5.18 GMC member s’ shareholdings (other than Directors) 202 5.7 Indemnities and insurance 201 5.19 Performance in relation to environmental regulation 203 5.8 Employee policies 201 5.20 Shar e capital, restrictions on transfer of shares 5.9 Corporate governance 201 and other additional information 203 5.10 Dividends 201 6 Legal proceedings 204 BHP Billiton Annual Report 2015 1Contents continued 7 Financial Statements 205 7.1 Consolidated Financial Statements 206 7.5 L ead Auditor’s Independence Declaration under Section 307C of the Australian 7.2 BHP Billiton Plc 275 Corporations Act 2001 284 7.3 Directors’ declaration 282 7.6 Independent Auditors’ reports 285 7.4 St atement of Directors’ Responsibilities 7.7 Supplementary oil and gas information – unaudited 289 in respect of the Annual Report and the Financial Statements 283 8 Glossary 295 8.1 Mining, oil and gas-related terms 296 8.3 Terms used in reserves and resources 301 8.2 Non-mining, oil and gas terms 298 8.4 Units of measure 301 9 Shareholder information 302 9.1 History and development 303 9.7 Dividends 311 9.2 Markets 303 9.8 Share price information 311 9.3 Organisational structure 303 9.9 American Depositary Receipts fees and charges 313 9.4 Material contracts 304 9.10 Taxation 313 9.5 Constitution 304 9.11 Government regulations 318 9.6 Share ownership 308 9.12 Ancillary information for our shareholders 320 2 BHP Billiton Annual Report 20151 Strategic Report BHP Billiton Annual Report 2015 31 Str ategic Report continued 1.1 Chairman’s Review BHP Billiton is a global company that values our host communities. Our tax payments are just one part of the contribution we make to the communities in which we operate. We paid more than US7.3 billion to governments worldwide in 2015. BHP Billiton is one of Australia’s largest taxpayers. In addition, we invested more than US225 million in local communities across the world on projects that include improving access to education and healthcare. Climate change remains a strategic consideration for your Board. We understand the importance of reducing the Company’s greenhouse gas emissions and ensuring the resilience of our business. Policy measures are also needed to effect reductions in emissions. We are contributing to practical and effective policy development and supporting the efforts of nations to reach a global agreement in Paris in December 2015. It is with profound sadness that the Board pays tribute to Sir John Buchanan after his passing in July 2015. Sir John served as a Non-executive Director of BHP Billiton from 2003 up until the time of his death and was the Senior Independent Director Dear Shareholder of BHP Billiton Plc. Sir John provided wise counsel to his fellow In the past year, we have seen continued growth in the global Directors and to management and we will miss him greatly – economy despite significant drops in commodity prices and both personally and for his invaluable contribution as a Director. volatility in currency and financial markets. I would also like to thank Keith Rumble and Carlos Cordeiro for At last year’s Annual General Meetings I said, ‘Events this year their valuable contribution over the years. Keith Rumble retired (FY2014) have been a reminder of how uncertain and volatile politics from the Board in May this year, while Carlos Cordeiro will retire and economics can be’. This year, those trends have accelerated. after the Annual General Meetings later this year. In line with While this level of uncertainty in the global economy can be our planned approach to Board succession, we appointed unsettling, for over 130 years your Company has demonstrated Anita Frew to the Board as a Non-executive Director with effect the ability to successfully overcome difficult challenges. from 15 September 2015. Anita’s depth of experience in strategic and risk management, marketing and governance across a broad Against this backdrop, in FY2015 we set production records across many of our operations. This, combined with a focus on range of sectors will enable her to make a significant contribution to the Board. We also announced that Shriti Vadera will assume productivity, offset some of the downturn in commodity prices. While our financial performance was impacted by market the role of Senior Independent Director of BHP Billiton Plc. conditions, continued improvements in operational performance, The results you will read about in this Report are due to the efforts productivity and higher production produced an Attributable profit of all our employees and contractors, led by Andrew Mackenzie. of US1.9 billion and Net operating cash flows of US19.3 billion. Through their efforts, your Company contributes to stronger We increased our full-year dividend by two per cent to 124 US cents economies and improved living standards around the world. per share. This is in addition to the pro rata, in-specie distribution Your Board is confident in the outlook for BHP Billiton and we of South32 shares to eligible shareholders during the year. thank you for your continued support of the Company. Your Company is in a strong financial position. We have lower debt, a strong balance sheet and solid cash flows. While we are taking an even more focused approach to capital allocation, we continue to invest in those projects that we expect to provide superior long-term returns. The focus on simplification and productivity saw Jac Nasser AO the demerger of South32 in May 2015. This transaction significantly Chairman simplified our portfolio, enabling us to focus on generating more value from our large-scale, high-quality assets while allowing shareholders continued ownership of South32’s operations. Tragically five of our colleagues died at work in FY2015. On behalf of the Board, I extend my deepest sympathy to their families and friends. Your Directors and your management team are committed to a safe workplace. 4 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.2 Chief Executive Officer’s Report Local partnerships continue to be an integral part of our business. In FY2015, we contributed US225 million to programs that will have a positive impact on the quality of life for people in our host communities. This year, we developed a new BHP Billiton Social Investment Framework to build a stronger linkage between our business and the communities that support and host us. The framework has identified three areas of sustainable development that will form the basis of future investments: governance, environment, and human capability and social inclusion. Climate change considerations remain central to planning and execution. We are taking action to reduce emissions, build the resilience of our operations and supply chains, and work with others to support effective policy development. We are exploring opportunities to invest in low-emission technologies such as carbon capture and storage and battery storage. We are proud to have publicly committed our support for the recognition of Australia’s Aboriginal and Torres Strait Islander Peoples in the nation’s constitution. We have strong relationships BHP Billiton delivered a solid set of results in FY2015, based with Indigenous peoples in Australia and around the world. on strong operating performance and improved productivity Our support for recognition in Australia’s foundation governance against a backdrop of a volatile global economy and lower document is consistent with the values underpinning the commodity prices. relationships we seek to have with Indigenous Australians. Our FY2015 safety performance was disappointing. While we Last month marked the 130th anniversary of the establishment improved total recordable injury frequency performance by of the Broken Hill Proprietary Company. The longevity of BHP Billiton two per cent to 4.1 injuries per million hours worked, five colleagues is a tribute to the enduring innovation, passion and commitment died at work. It is with deep sadness that I extend my condolences that has supported our rise from a single operation on a remote to their families, friends and workmates. Safety is unquestionably sheep station in western New South Wales, Australia to a Company my first priority, as it is for everyone at BHP Billiton. I am working operating across the globe. with all the leaders of BHP Billiton and we have implemented a Company-wide program of engagement to make our workplaces We will build upon this inheritance by making sure we continue safer than ever before. to have the very best people working with the best assets in the best commodities. We remain confident that focus on best-in-class In FY2015, the focus on best-in-class performance across our performance, unrivalled asset quality, diversification and investment operations delivered productivity gains of US4.1 billion, two years in high-return projects, will create long-term value through the ahead of target. Iron Ore and Metallurgical Coal achieved annual cycle and deliver superior returns to our shareholders. production records, with increases of 14 per cent and 13 per cent respectively, Petroleum production increased by four per cent and In everything we do, we are motivated by the knowledge that the Copper production was flat following the unplanned mill outage at commodities we produce are central to global economic growth Olympic Dam. This resulted in an overall Group production increase and development. Every employee of BHP Billiton is proud of the of nine per cent on a copper equivalent basis. role the Company plays in supporting the supply of the resources necessary to improve living standards and social progress. Improved operational productivity has generated strong cash flow to fund the progressive dividend, maintain a solid ‘A’ credit rating I would like to extend my sincere thanks to our suppliers, and allow us to continue to invest in growth. Further operational customers, host communities and shareholders. I would especially productivity will stretch the capacity of existing operations to safely like to thank the employees and contractors whose contributions increase volumes at very low cost, and increased capital productivity help BHP Billiton reach its potential, and whose commitment to will reduce the cost of investments. In FY2015, we reduced capital step up and deliver their best makes me very proud to be part and exploration expenditure to US11 billion and expect this to of this great Company. decline to US8.5 billion in FY2016. We have unique, high-return growth opportunities within the portfolio, and our cash flows and disciplined capital management structure will allow us to progress these when the time is right. In May 2015, we completed the demerger of South32 to create Andrew Mackenzie a more focused portfolio for BHP Billiton. This simpler portfolio Chief Executive Officer of assets, with more similar characteristics, allows a sharper focus on the Businesses that generate the majority of our earnings, and increases the potential for further productivity gains and shareholder value. Post-demerger, BHP Billiton’s strategy remains unchanged and Our Charter values of Sustainability, Integrity, Respect, Performance, Simplicity and Accountability will continue to define and guide us. BHP Billiton Annual Report 2015 51 Strategic Report continued 1.3 Our Company We are BHP Billiton, a leading global resources company. We are among the world’s top producers of major commodities, including iron ore, metallurgical coal, copper and uranium, and have substantial interests in conventional and unconventional oil and gas and energy coal. 1.3.1 Group overview Our strategy is to own and operate large, long-life, low-cost, The long-term nature of our operations allows us to build expandable, upstream assets diversified by commodity, geography collaborative community relationships. Our size and scope mean and market. Our diversified portfolio of high-quality assets we can make a meaningful contribution to communities in which gives us resilience and flexibility to enhance value throughout we operate. We aim to maximise the economic and social benefits the commodity cycle. of our operations to contribute to global economic development, while minimising our environmental footprint, for example through We extract and process minerals, oil and gas from our production innovation, productivity and technology. operations located primarily in Australia and the Americas. We sell our products globally with sales and marketing taking We have strong governance processes in place, high standards of place principally through Singapore and Houston, United States. ethical and responsible behaviour, and we are an active contributor As at 30 June 2015, our workforce consisted of approximately to societal development. We care as much about how results are 80,000 employees and contractors. achieved as we do about the results themselves. During FY2015, we demerged a selection of BHP Billiton’s alumina, aluminium, coal, manganese, nickel, silver, lead and zinc assets into a new company, South32. The safety and health of our people and of the broader communities in which we operate are central to the success of our organisation. Regardless of where our people are located, the area of the organisation in which they work or the type of work they undertake, we strive to create an environment that is free from fatality, injury or occupational illness. 6 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.3.2 Our structure 1.3.3 Strategic context BHP Billiton operates under a Dual Listed Company (DLC) Across the globe, communities are experiencing structure, with two parent companies BHP Billiton Limited and transformational change – economically, socially, technologically BHP Billiton Plc operated as a single economic entity, run by and environmentally. As these accelerate and interconnect, a unified Board and management team. Our headquarters are they create opportunities for innovation and improvement. located in Melbourne, Australia. We aim to be at the forefront of these shifts and provide the resources needed to turn change into positive development. BHP Billiton Limited has a primary listing on the Australian Securities Exchange (ASX) in Australia. BHP Billiton Plc has a premium listing We supply the mineral and energy commodities that are crucial on the UK Listing Authority’s Official List and its ordinary shares are for all stages of economic growth. Emerging economies require admitted to trading on the London Stock Exchange (LSE) in the construction materials like steel as their populations expand and United Kingdom and a secondary listing on the Johannesburg Stock new cities and heavy industry develop. As economies grow and Exchange (JSE) in South Africa. In addition, BHP Billiton Limited people become wealthier, a consumer economy emerges and American Depositary Receipts (ADRs) and BHP Billiton Plc ADRs steel intensity slows while demand increases for materials that trade on the New York Stock Exchange (NYSE) in the United States. are used in consumer goods, such as copper. Increased income leads to a demand for agricultural commodities, including potash. Our Operating Model describes the way the Company is organised The products in our portfolio are the raw materials that fuel and sets out the relationship between the Businesses, Group change and support an improvement in living standards for Functions and Marketing. The Operating Model defines how we people in many parts of the world. work, how we are organised and how we measure performance. While short-term demand for commodities has moderated, • Businesses: Our assets, operations and interests are separated our global energy needs are expected to increase by around into four business units. These Businesses are: Petroleum and 30 per cent in the next 20 years. Around two thirds of new Potash; Copper; Iron Ore; and Coal. The Operating Model has demand will originate from Asia, with the majority from China been designed to ensure that decision-making remains as close and India. Sub-Saharan Africa is expected to see the fastest to the Businesses as possible. growth, albeit from a lower base. • Group Functions: Group Functions support the Businesses and By 2030, around 50 per cent of newly installed electricity capacity operate under a defined set of accountabilities authorised by in China and India is expected to be renewable energy. However, the Group Management Committee (GMC). Our Group Functions even with the strong growth in renewables, the energy supply are primarily located in Melbourne, London and Singapore. mix in these two Asian giants is expected to continue to be • Marketing: Marketing is responsible for securing sales of our dominated by oil, coal and gas. product; realising the full value of our products; managing the supply chain from resources to markets; supporting strategic Independent bodies such as the International Energy Agency decision-making through market insights; minimising operating believe that over the next few decades, fossil fuels will remain costs and optimising working capital. central to the energy mix as their affordability and the scale of existing infrastructure often make them hard to practically replace, The core principles of the Operating Model include mandatory although their exact percentage varies across a range of scenarios. performance requirements, common organisational design, common systems and processes, and common planning and reporting. We think and plan in decades and generations, and we have long recognised that sustainable growth requires an effective response The Operating Model is designed to deliver a simple and scalable to climate change. Responding to climate change is a priority organisation to achieve a sustainable improvement in productivity Board governance and strategic issue for our Company. BHP Billiton by providing performance transparency, eliminating duplication accepts the IPCC’s assessment of climate change science, which of effort and enabling the more rapid identification and deployment has found that warming of the climate is unequivocal, the human of best practice. influence is clear and physical impacts are unavoidable. We believe that the world must pursue the twin objectives of limiting climate change to the lower end of the IPCC emission scenarios in line with current international agreements, while providing access to reliable and affordable energy to support economic development and improved living standards. Our strategic approach to climate change is underpinned by engagement with policy makers and other stakeholders, including investors, companies and non-government organisations. Industry has a key role to play in climate change policy development by working with governments and other stakeholders to inform the development of an effective, long-term policy framework that delivers a measured transition to a low carbon economy. BHP Billiton believes that any such policy framework should include a complementary set of measures, including a price on carbon, support for low-emissions technologies and measures to build resilience. BHP Billiton Annual Report 2015 71 Strategic Report continued 1.3.4 FY2015 performance summary Two per cent 3 5.9 US cents (3) Basic earnings per ordinary share decreased by 86 per cent. reduction (1) Total recordable injury frequency. Five work-related fatalities. 1 24 US cents Total dividend per share increased by two per cent. U S108 billion U S4.1 billion Market capitalisation as at 30 June 2015. (4) Sustainable productivity gains delivered during FY2015. U S44.6 billion N ine per cent increase Revenue from Continuing operations decreased by 21 per cent. Production increase on a copper equivalent basis in FY2015. U S19.3 billion S ix per cent reduction (2) (5) Net operating cash flows decreased by 24 per cent. Greenhouse gas emissions (CO -e). 2 (1) Total recordable injury frequency for FY2015 includes the contribution from Continuing and Discontinued operations. (2) Includes ‘Net operating cash flows from Discontinued operations’ of US1,502 million which represents the contribution to operating cash flows from assets that were demerged with South32. (3) Presented on a Continuing and Discontinued operations basis. (4) Presented on a Continuing operations basis to exclude the contribution from assets that were demerged with South32. (5) Greenhouse gas (GHG) emissions from demerged South32 assets are included in FY2015 total GHG emissions (estimated between the date of demerger and 30 June 2015). (1) (1) Attributable profit Underlying EBIT US1.9 billion US11.9 billion US million US million 25,000 30,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 5,000 0 0 (1) Includes data for Continuing and Discontinued (1) Excludes data from Discontinued operations operations for the financial years being reported. for the financial years being reported. Dividends determined Community investment US6.6 billion US225 million US million US million 7,000 250 6,000 83 200 5,000 150 4,000 142 3,000 100 2,000 50 1,000 Corporate charities (1) Expenditure 0 0 (1) Includes BHP Billiton’s equity share for both operated and non-operated joint venture operations. Includes payments made by operations demerged with South32. 8 BHP Billiton Annual Report 2015 FY2011 FY2011 FY2012 FY2012 FY2013 FY2013 FY2014 FY2014 FY2015 FY2015 FY2011 FY2011 FY2012 FY2012 FY2013 FY2013 FY2014 FY2014 FY2015 FY20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.3.5 About this Strategic Report This Strategic Report meets the requirements of the Strategic For example, our future revenues from our operations, projects Reporting required by the UK Companies Act 2006 and the or mines described in this Annual Report will be based, in part, Operating and Financial Review required by the Australian upon the market price of the minerals, metals or petroleum Corporations Act 2001. products produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the This Strategic Report provides insight into BHP Billiton’s strategy, timing or the feasibility of the development of a particular project, operating and business model and objectives. It describes the the expansion of certain facilities or mines, or the continuation principal risks the Company faces and how these risks might affect of existing operations. our future prospects. It also gives our perspective on our recent operational and financial performance. Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated We intend this disclosure to assist shareholders and other lives of operations, mines or facilities include our ability to profitably stakeholders to understand and interpret the Consolidated produce and transport the minerals, petroleum and/or metals Financial Statements prepared in accordance with International extracted to applicable markets; the impact of foreign currency Financial Reporting Standards (IFRS) included in this Annual exchange rates on the market prices of the minerals, petroleum Report. The basis of preparation of the Consolidated Financial or metals we produce; activities of government authorities in the Statements is set out in note 41 ‘Basis of preparation and countries where we are exploring or developing projects, facilities measurement’ to the Financial Statements. To obtain full details or mines, including increases in taxes, changes in environmental of the financial and operational performance of BHP Billiton and other regulations and political uncertainty; labour unrest; this Strategic Report should be read in conjunction with the and other factors identified in the risk factors set out in section 1.7.2 Consolidated Financial Statements and accompanying notes. of this Annual Report. We have excluded certain information from this Strategic Report, Except as required by applicable regulations or by law, the Group to the extent permitted by UK and Australian law, on the basis that does not undertake to publicly update or review any forward looking it relates to impending developments or matters in the course of statements, whether as a result of new information or future events. negotiation and disclosure would be seriously prejudicial to the interests of the Group. This is because such disclosure could be Past performance cannot be relied on as a guide to misleading due to the fact it is premature or preliminary in nature, future performance. relates to commercially sensitive contracts, would undermine confidentiality between the Group and its suppliers and clients, 1.3.7 Completed demerger of assets or would otherwise unreasonably damage the business. The categories of information omitted include forward looking In August 2014, we announced our intention to create a new estimates and projections prepared for internal management company through the demerger of a selection of assets that purposes, information regarding the Group’s assets and projects included BHP Billiton’s interest in its integrated Aluminium which is developing and susceptible to change, and information business, Energy Coal South Africa, Illawarra metallurgical coal, relating to commercial contracts and pricing modules. the Manganese business, the Cerro Matoso nickel operation and the Cannington silver-lead-zinc mine. After receiving shareholder Section 1 of this Annual Report 2015 constitutes our Strategic approval for the demerger on 6 May 2015 (with approximately Report 2015. References to sections beyond section 1 are references 98 per cent of votes cast being in favour), the new company, to sections in this Annual Report 2015. Shareholders may obtain South32, was listed on the ASX as an independent company on a hard copy of the Annual Report free of charge by contacting 18 May 2015 and the formal separation of South32 from BHP Billiton our Share Registrars, whose details are set out in our Corporate was completed on 25 May 2015. Eligible BHP Billiton Limited Directory at the end of this Annual Report. and Plc shareholders received shares in South32 in the demerger The Annual Report 2015 is available online at through a pro rata, in-specie distribution, as well as retaining w w w . bhpbilliton . com. their existing shares in the Group. For IFRS accounting purposes, the demerger was deemed 1.3.6 Forward looking statements completed as of 8 May 2015 (the date of loss of control) and the demerged assets are treated as Discontinued operations This Annual Report contains forward looking statements, including in BHP Billiton’s Financial Statements. Unless otherwise stated, statements regarding trends in commodity prices and currency throughout this Annual Report financial information for FY2015 exchange rates; demand for commodities; production forecasts; relating to the demerged assets is reported for the period from plans, strategies and objectives of management; closure or 1 July 2014 to 8 May 2015 as Discontinued operations, while divestment of certain operations or facilities (including associated FY2015 production information relating to the demerged assets costs); anticipated production or construction commencement is reported for the period from 1 July 2014 to 30 April 2015 dates; capital costs and scheduling; operating costs; anticipated to more closely align with BHP Billiton’s month-end reporting productive lives of projects, mines and facilities; provisions and systems. Continuing operations refers to the assets that formed contingent liabilities; and tax and regulatory developments. part of the BHP Billiton Group as at 30 June 2015. Forward looking statements can be identified by the use of Comparative information for the years ended 30 June 2014 terminology such as ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, and 30 June 2013 has been restated for the effects of the ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’ or similar application of IFRS 5/AASB 5 ‘Non-current Assets Held for Sale words. These statements discuss future expectations concerning and Discontinued Operations’ following the demerger of South32. the results of operations or financial conditions, or provide other The Consolidated Statement of Comprehensive Income, the forward looking information. Consolidated Balance Sheet and the Consolidated Statement of These forward looking statements are not guarantees or predictions Changes in Equity for these periods are not required to be restated. of future performance, and involve known and unknown risks, For more information on the South32 demerger and reporting uncertainties and other factors, many of which are beyond our of Continuing and Discontinued operations, refer to sections control, and which may cause actual results to differ materially 1.6.4 and 2.1.7 of this Annual Report and note 29 ‘Discontinued operations’ to the Financial Statements. from those expressed in the statements contained in this Annual Report. Readers are cautioned not to put undue reliance on forward looking statements. BHP Billiton Annual Report 2015 9BHP Billiton locations United Kingdom Production Unit 6 29 Corporate Oice Algeria Joint Interest Unit 7 Pakistan Production Unit 4 27 Global Corporate 28 Services Centre Marketing and Corporate Oice Australia Production Unit Australia Joint Interest Unit 8 BHP Billiton Mitsui Coal 2 15 21 Western Australia Iron Ore 20 BHP Billiton Mitsubishi Alliance Olympic Dam 22 11 13 17 Nickel West 24 Coal Head Oice 2 23 Iron Ore Head Oice 8 New South Wales Energy Coal Global Headquarters Australia Production Unit Australia Joint Interest Unit 25 Potash Head Oice 31 Corporate Oice New Mexico Coal 18 1 Onshore US 30 Petroleum Head Oice 9 3 Gulf of Mexico Joint Interest Unit Gulf of Mexico Production Unit 5 Trinidad and Tobago Production Unit 19 Cerrejón 14 Antamina 16 Samarco 12 Pampa Norte 10 Escondida 26 Copper Head Oice 10 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.4 BHP Billiton locations We are among the world’s top producers of major commodities, including iron ore, metallurgical coal, copper and uranium, and have substantial interests in conventional and unconventional oil and gas and energy coal. Petroleum and Potash Ref Country Asset Description Ownership 1 US Onshore US Onshore shale liquids and gas fields in Arkansas, Louisiana and Texas 1–100% 2 Australia Australia Production Unit Operated offshore oil fields and onshore gas processing facilities 40–90% in Western Australia and Victoria 3 US Gulf of Mexico Production Unit Operated offshore oil and gas fields in the Gulf of Mexico 35–44% 4 Pakistan Pakistan Production Unit Operated onshore oil and gas fields 38.5% 5 Trinidad and Tobago Trinidad and Tobago Production Unit Operated offshore oil and gas fields 45% 6 UK United Kingdom Production Unit Operated offshore oil and gas fields 16–31.83% (1) 7 Algeria Algeria Joint Interest Unit Joint interest onshore oil and gas unit 38% (1) 8 Australia Australia Joint Interest Unit Joint interest offshore oil and gas fields in Bass Strait and North West Shelf 8.3–50% (1) 9 US Gulf of Mexico Joint Interest Unit Joint interest offshore oil and gas fields in the Gulf of Mexico 5–44% Copper Ref Country Asset Description Ownership 10 Chile Escondida Open-cut mine and processing facilities, producing copper concentrate and 57.5% copper cathode, located in northern Chile 11 Australia Olympic Dam Underground mine and processing, smelting and refining facilities producing 100% copper cathode, uranium oxide, gold and silver 12 Chile Pampa Norte Two open-cut mines, producing copper cathode in northern Chile 100% 13 Australia Nickel West Integrated sulphide mining, concentrating, smelting and refining operation 100% in Western Australia (1) 14 Peru Antamina Open-cut copper and zinc mine, located in northern Peru 33.75% Iron Ore Ref Country Asset Description Ownership 15 Australia Western Australia Iron Ore Integrated iron ore mines, rail and port operations in the Pilbara region 51–85% of Western Australia (1) 16 Brazil Samarco Open-cut iron ore mine, concentrators and pelletising facilities 50% Coal Ref Country AssetDescription Ownership 17 Australia New South Wales Energy Coal Open-cut energy coal mine and coal preparation plant in New South Wales 100% (2) 18 US New Mexico Coal Energy coal mines in New Mexico 100% (1) 19 Colombia Cerrejón Open-cut energy coal mine with integrated rail and port operations 33.3% 20 Australia BHP Billiton Mitsubishi Alliance Open-cut and underground metallurgical coal mines in the Bowen Basin and 50% Hay Point Coal Terminal, Queensland 21 Australia BHP Billiton Mitsui Coal Two open-cut metallurgical coal mines in the Bowen Basin, Central Queensland 80% BHP Billiton principal office locations Ref Country Location Office 22 Australia Brisbane Coal Head Office 23 Australia Melbourne Global Headquarters 24 Australia Perth Iron Ore Head Office 25 Canada Saskatoon Potash Head Office 26 Chile Santiago Copper Head Office 27 Malaysia Kuala Lumpur Global Corporate Services Centre 28 Singapore Singapore Marketing and Corporate Office 29 UK London Corporate Office 30 US Houston Petroleum Head Office 31 US New York Corporate Office (1) Non-operated joint venture. (2) Completed sale of Navajo Mine and will retain control until final transfer. BHP Billiton Annual Report 2015 111 Strategic Report continued 1.5 Strategy and business model 1.5.1 Our consistent strategy Our purpose Our values Our corporate purpose is to create long-term shareholder value In pursuing our strategy through all stages of the economic and through the discovery, acquisition, development and marketing commodity cycles, we are guided by Our BHP Billiton Charter of natural resources. values of Sustainability, Integrity, Respect, Performance, Simplicity and Accountability. Our strategy Our overriding commitment is to ensuring the safety of our people, Our strategy is to own and operate large, long-life, low-cost, and respecting our environment and the communities in which we expandable, upstream assets diversified by commodity, work. This commitment informs everything we do and influences geography and market. every aspect of our work. Our unique position in the resources industry is due to our proven Operational capability is fundamental to our strategy. It is reflected and consistent strategy. In line with our strategy, we pursue growth in Our Charter, in particular our values of Performance – achieving opportunities consistent with our core skills of: superior business results by stretching our capabilities, and • evaluating, developing and extracting resources in our Simplicity – focusing our efforts on the things that matter most. Businesses; • distributing and selling our products, and managing financial risk Our success factors associated with our revenue through Marketing; We are successful when: • defining and governing world-class functional standards, which • our people start each day with a sense of purpose and end are implemented Group-wide through our Group Functions. the day with a sense of accomplishment; • our communities, customers and suppliers value their We operate in a dynamic, globally competitive environment. relationships with us; Our strategy has delivered strong Company performance over time which, in turn, underpins the creation of long-term sustainable • our asset portfolio is world-class and sustainably developed; value for our shareholders, customers, employees and the • our operational discipline and financial strength enables our communities in which we operate. We aim to deliver long-term future growth; and sustainable value rather than focusing on short-term returns. • our shareholders receive a superior return on their investment. 12 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.5.2 Our business model Extraction, processing Development Exploration and evaluation Marketing and logistics and transportation Exploration and evaluation Extraction, processing and transportation • Discovery through brownfield and greenfield exploration. • Open-pit and underground mining. • Evaluating our portfolio. • Extracting conventional and unconventional oil and gas. • Divestment and acquisition. • Processing and refining. Our portfolio of existing assets in large resource basins provides Across our global operations, the diversification of our portfolio us with potential growth opportunities. This has allowed us to of assets by commodity, geography and market continues to be reduce our greenfield exploration expenditure and rationalise one of our differentiating features. Our goal is to safely operate our brownfield exploration program. We continue to focus all our assets at capacity through mining, extracting, processing our greenfield exploration on copper in Chile, Peru and the and transporting commodities. southwestern United States, and conventional oil and gas, We continue to set production records at a number of assets. predominantly offshore in the Gulf of Mexico, Western Australia Through the development and use of standard operating practices and Trinidad and Tobago. We evaluate the results of our brownfield and technology, we are driving efficiencies through improved and greenfield exploration to identify future growth projects capital intensity, labour productivity and increased utilisation consistent with our strategy to own and operate large, of plant and machinery. long-life, low-cost, expandable, upstream assets. We also Our extraction and processing activities are mindful of our continually evaluate our portfolio and consider divestment ongoing sustainability obligations, including rehabilitation and acquisition opportunities. at the end of the asset life. Development Marketing and logistics • Evaluating and developing projects. BHP Billiton’s Marketing organisation is responsible for: • Developing the Group-wide view of the markets and The evaluation and development of large-scale resource projects future pricing. generates significant value for BHP Billiton. We have a number • Supporting the Businesses to maximise the value of upstream of high-quality growth projects currently under development. resources. We also have a large number of growth opportunities in our project pipeline in varying stages of evaluation. • Managing the supply chain to customers. • Achieving market clearing prices for the Group’s products. In our development process, these projects progress through • Selling the Group’s products and purchasing all major raw feasibility to execution only after internal and external approvals. materials. Our rigorous internal review process requires projects to pass through various tollgates for internal approvals at each stage, • Managing price risk. including Board approval for major projects. Due to its proximity to our customers in Asia, the primary hub Potential expansion projects must compete for capital within for our marketing activities is Singapore, while our marketing BHP Billiton and approved only if they meet our strict criteria of oil and gas is headquartered in Houston, United States. for investment. In addition, we have marketers located close to our customers in nine cities around the world. Marketing’s responsibilities require an active presence in the various commodities markets, the global freight market and the crude and gas pipeline transportation market, through which we manage the supply chain for our products and develop strong integrated relationships between our Businesses and our customers. Our market insight is strengthened by the multi-commodity nature of our organisation, our proximity to our customers and the flow of information in our centralised marketing structure. A description of our risk factors, including those that impact our business model, and our approach to risk management are presented in section 1.7 of this Annual Report. BHP Billiton Annual Report 2015 131 Strategic Report continued 1.5.3 External factors and trends Economic outlook higher temperatures. In addition national governments have already introduced or are contemplating the introduction of, regulatory The global economy grew at a modest rate in FY2015 with a mild responses to greenhouse gas emissions from the combustion of improvement in developed economies offsetting a moderation fossil fuels to address the impacts of climate change. There has also in emerging markets. been a number of divestment campaigns that have focused on fossil In China, a slowdown in the property sector and fixed asset fuels ‘stranded assets’. We continue to welcome the opportunity investment led to lower economic growth following policy to engage with our shareholders on our business strategy to ensure tightening in CY2014. Consumer spending remained resilient the benefits and resilience of our portfolio, including in a carbon reflecting the continued rebalancing of the economy. A number constrained world, are understood. of interest rate reductions, cuts in bank reserve requirements, Other external factors and trends boosts to infrastructure spending and administrative measures supporting the property market are likely to buttress growth over A number of external factors and trends may continue to have a material impact on our financial and operational results, the remainder of CY2015. In line with our expectations, the economy is growing more slowly as it matures over the medium as described in section 1.15.1 of this Annual Report. These factors include commodity prices, exchange rates, and operating costs. term and the government’s reform program promotes domestic consumption over investment. We expect the authorities will The chart below presents the price movements in our core Business continue to press ahead with reform in a cautious but sustained commodities over the past 10 years. Over this period we have manner as they seek to improve the efficiency of capital allocation benefited from generally strong commodity prices, which have in the economy, while maintaining support for employment. trended downwards in FY2015 and this trend has continued post The US economy continued to improve despite weakness in the 30 June 2015. March 2015 quarter caused by severe weather in the northeast and a stronger US dollar. Ongoing strength in the labour market, Commodity prices 2006– 2015 rising disposable incomes, higher equity markets and improved Iron ore, Metallurgical coal, housing prices supported consumer demand. After a period Energy coal, Crude oil Copper, Gas in which businesses failed to respond to improved economic (US/unit) (US/unit) conditions and higher levels of profitability, corporate investment has begun to show signs of recovery. The Federal Reserve is 300 18 expected to begin increasing interest rates in the first half of CY2016. 250 15 The European Central Bank began a program of quantitative easing in March 2015, which appears to be driving a modest pick-up in economic growth. Activity has improved across the 200 12 Eurozone, with the exception of Greece, reflecting a broad-based lift in domestic demand. We expect this improvement in growth 150 9 to continue in FY2016. Japan’s economy saw growth improve in annualised terms as the 100 6 year progressed, supported by the Bank of Japan’s quantitative easing and a weaker yen. Growth should be supported by stronger 50 3 business investment into FY2016. A longer-term, sustainable recovery is contingent on the scale and speed of structural reform. 0 0 Climate change 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The physical impacts of climate change and various regulations that seek to address climate change may affect our operations, Iron ore Metallurgical coal Gas productivity and the markets in which we sell our products. Energy coal Crude oil Copper Physical effects may include changes in rainfall patterns, water shortages, rising sea levels, increased storm intensities and A summary of the pricing trends for our most significant commodities for FY2015 is presented in section 1.15.1 of this Annual Report. 1.5.4 Corporate planning At BHP Billiton we have a long-standing and robust corporate Corporate planning framework planning process that underpins the development and delivery A Board Strategy Forum is held regularly where the Board and of our strategy. the GMC actively discuss and debate the Company’s strategy. Businesses prepare long-term plans and discuss these plans Our planning process involves a review of our strategy against at strategic reviews with the GMC. a constantly changing external environment and the risks and opportunities this presents, to optimise our returns A BHP Billiton 20-year Plan is prepared based on input from the to our shareholders. Businesses’ long-term plans and is optimised for an annual capital allocation limit that maximises total shareholder returns, while Core principles ensuring financial risks are appropriately mitigated. Within this The corporate planning cycle embodies the following capital ceiling, major growth options are optimally sequenced core principles: over the 20-year Plan through our capital allocation process. • Board and GMC ownership and regular review of strategy The capital allocation process includes analysis of net present value and strategic priorities. (NPV), internal rates of return (IRR), return on capital (ROC) and • Regular engagement between the GMC, Businesses, Group margin analysis to inform decision-making. This process is further Functions and Marketing. described in section 1.6.3 of this Annual Report. All available growth • Application of a consistent and integrated planning process options are assessed and prioritised to generate a high-value and where Business, Group Functions and Marketing plans are capital-efficient portfolio, which provides flexibility to return excess aggregated to form the overall corporate plan. cash to shareholders. The increased competition for capital has • Cycle begins with long-term strategic plans followed improved our capital productivity. by short-term plans to deliver strategic imperatives. • Ensure our portfolio and plans are resilient under both long-term scenarios and short-term shock events. 14 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report M A C R O G n R I o N i S t a c o l l 1.5.4 Corporate planning continued The flowchart below illustrates our corporate planning framework. Board Strategic Planning (20+ years) Business Directional Plans and Strategy Reviews Reviewed under divergent scenarios Maximise shareholder returns Business Delivery Appraisals (Business Plans and two-year Budget) We believe that the rigour of our corporate planning process, • High, sustainable economic growth is unlocked by productivity combined with the flexibility it provides the Company to quickly gains in advanced economies. Reform success in India achieves respond to an inherently dynamic external environment, high transformative growth. Parts of the global resource base is essential to maximise total shareholder returns. are not as accessible as once thought. Rapidly growing production rates of some commodities deplete basins and reserve The starting point of our planning process is the construction replacement is costly. More difficult to access capital in resource of a central case, built through an in-depth, bottom up analysis rich economies given greater uncertainty in regulatory regime using rigorous processes, benchmarked with external views, and and higher capital costs. Technology development is focused thoroughly reviewed and endorsed periodically by the GMC and on highly differentiated products including uptake and transfer the Board. Our current central case assumes the US economy of information and communications technology (ICT), robotics continues to recover and strengthen, progressive development and bio-technology. There is less technology transfer from the of China and India, integration of emerging economies into major economies to emerging economies. a multi-polar economic environment, and action on climate • A future state enmeshed in economic stagnation and change centred on national policies with short-term prioritisation protectionism. Nationalism drives economic policy rather than to adaptation and a long-term shift toward mitigation. reform. Security of supply rather than lowest cost sourcing Scenarios drives resources investment policy. Global cooperation is limited Our corporate planning process uses scenario analysis to and research and development dwindles with low private sector encompass a wide spectrum of potential outcomes for key global capacity and government support. Food and water supply does uncertainties. Designed to interpret external factors including not meet global requirements provoking instability in some technical, economic, political and governance trends facing the economies. Climate change commitments are abandoned global resources industry, the scenarios offer a means by which to in favour of adaptation. explore potential portfolio discontinuities and opportunities, as well Tracking of signposts (trends) and triggers (events) across scenarios as to test the robustness of decisions. is integral to our planning process. These signposts and triggers Our scenarios do not constitute preferred outcomes for BHP Billiton. provide an indication of which scenarios are becoming more The Company’s approach to critical global challenges, such as or less dominant through time. They allow early awareness for the the importance of addressing climate change, continues to be move towards a scenario, offering us a powerful decision-making based on Our Charter values, including our value of Sustainability. tool that would enable us to act early. For example, the nature Our position on climate change is discussed further in sections 1.6.1 and pace of growth in global foreign direct investment, including and 1.14 of this Annual Report. patent, trademark and design application trends by industry are indicator variables that measure the pace of uptake of global and The scenarios are designed to be divergent, but also plausible inter-regional technology transfer, a signpost that reflects the and internally consistent, spanning unique potential future nature and extent of liberalised trade. An example of a potential business environments. An outline of the key characteristics trigger event is a ratified accord on climate change during the of each of our scenarios is set out below: 2015 United Nations Framework Convention on Climate Change • Robust global economic growth sustains strong impetus to Conference of the Parties, and binding agreements on longer-term develop and implement cleaner, more energy efficient solutions carbon emissions targets were enacted across key economies. that support growth. Unified societal action to address climate change leads to high cooperation and commitment to limit Our analysis highlights that our uniquely diversified, high-quality portfolio of assets is robust across each of our scenarios. For emissions. Technology plays a pivotal role with breakthroughs in new, next generation clean energy technologies. Higher-cost example, in a carbon constrained world, we believe there is a likelihood of upside for uranium and our high-quality hard coking options are often deployed to meet lower CO stabilisation targets. 2 coal (with lower smelting emissions) and iron ore lump product There is an orderly transition to a two degrees Celsius world. (for direct blast furnace feed). In addition, we expect that copper • Strong global growth led by China and the United States would be resilient and offer continued opportunity for growth, underpinned by liberalised trade. Coordination in environment, while our gas exposure may yet provide opportunities during a technology and trade policy reduces water and food constraints. transition to a lower-carbon economy. In general, we anticipate Technology dynamism with significant investment in research that these commodities are robust and could help mitigate and development underpinned by high economic growth, potential negative impacts in other commodities. and a coordinated response to addressing climate change. BHP Billiton Annual Report 2015 15 a l a t i p I V a R P R C N1 Strategic Report continued 1.6 Strategic priorities Our GMC maintains a strong focus on the following strategic priorities in order to execute the Company’s strategy. A number of these priorities are monitored by the GMC using the key performance indicators as presented in section 1.10 of this Annual Report. 1.6.1 Continue to operate sustainably We will continue to operate sustainably with our focus on the As part of our constant focus to eliminate fatal and other serious following areas: incidents, a Company-level safety intervention was initiated in FY2015. The safety intervention was launched across our business Protect our people and improve the health and safety of our through a variety of methods, including workshops, team talks and operations surveys. Feedback was presented at our senior leaders’ meeting The health, safety and wellbeing of our people are central to in July 2015, identifying the key controls, programs, systems, the success of our organisation. Regardless of where our people processes and tools currently in place that require improvement are located or the type of work they undertake, we strive to create and Company-wide adoption through focused leadership. a working environment that is free from occupational illness or Support sustainable development of our host communities injury. Identifying and managing fatal and material risk is a critical component of our management approach. By understanding and We strive to be a valued partner in the communities in which we managing our risks, we provide greater protection for our people, operate and, through all our interactions, seek to foster meaningful, communities and assets. long-term relationships that respect local cultures and create lasting benefits. We are also proud of our broader contribution Despite our goal to achieve zero work-related fatalities, tragically to society. Our commodities support economic development and we lost five of our colleagues in FY2015. Four fatalities occurred ultimately lead to urbanisation and improved standards of living. during on-site work activities and one fatality occurred in an Through employment, taxes and royalties, we support local, off-site transportation accident. Independent investigations regional and national economies. Where possible, we purchase were undertaken for each incident, with remedial action taken local goods and services and develop infrastructure that benefits and findings from the investigations shared across the Group. entire communities. In FY2014, we had no work-related fatalities at our operated assets, a goal that we will continue to work towards. Our position on climate change We accept the Intergovernmental Panel on Climate Change’s (IPCC) assessment of climate change science which has found that warming of the climate is unequivocal, the human influence is clear and physical impacts are unavoidable. We believe that: • The world must pursue the twin objectives of: – limiting climate change to the lower end of the IPCC emission scenarios in line with current international agreements; while – providing access to reliable and affordable energy to support economic development and improved living standards. • Under all current plausible scenarios, fossil fuels will continue to be a significant part of the energy mix for decades. • Therefore, there needs to be an acceleration of effort to drive energy efficiency, develop and deploy low-emissions technology and adapt to the impacts of climate change. • There should be a price on carbon, implemented in a way that addresses competitiveness concerns and achieves lowest cost emissions reductions. We will: • continue to take action to reduce our emissions; • build resilience of our operations, investments, communities and ecosystems to climate change impacts; • seek to enhance the global response by engaging with governments, recognising their role as policy makers; • work in partnership with resource sector peers to improve sectoral performance and increase the industry’s influence in policy development to deliver effective long-term regulatory responses; • contribute to reducing emissions from the use of fossil fuels through material investments in low-emission technology. 16 BHP Billiton Annual Report 20151 Strategic Report 2 Business overview 3 Corporate Governance Statement 4 Remuneration Report 5 Directors’ Report 1.6.1 Continue to operate sustainably continued 1.6.2 A more productive organisation We voluntarily invest one per cent of our pre-tax profit, calculated During the past year, we have continued to focus on sustainable on the average of the previous three years’ pre-tax profit, in improvement in productivity across the Company. Our people have community programs. Since 2001, BHP Billiton has committed worked smarter to identify and implement more productive ways more than US2 billion in programs that aim to have a long-lasting, of working. Our portfolio, common systems, structures and culture positive impact on quality of life around the world. During FY2015, have also resulted in greater volume growth from our existing plant our voluntary community investment totalled US225 million, and equipment at lower unit costs. comprising US142 million in cash, in-kind support and Our Operating Model remains the foundation for our sustainable administrative costs and a US83 million contribution to the productivity gains. It guides how our people work together, defines BHP Billiton Foundation. how we are organised and allows us to measure operational and Strategic approach to climate change financial performance across our business. It also helps remove duplication, build capability and more rapidly identify and deploy Our strategic approach to climate change is underpinned best practices. by engagement with policy makers and other stakeholders including investors, companies and non-government organisations. To achieve functional excellence across the Company, we are We believe industry has a key role to play in climate change policy developing our people and encouraging our teams to learn from development by working with governments and other stakeholders each other. Our focus is on creating an inclusive environment to inform the development of effective long-term policy frameworks where every employee feels they can contribute to improving that deliver a measured transition to a lower emissions economy. our performance. We have an integrated approach to addressing climate change Increasing transparency and access to robust data across that has three key areas: mitigation, adaptation and low-emissions the organisation has improved our ability to deliver sustained technology (LET). As well as taking action to reduce emissions, improvements. By using 1SAP as our single Company-wide adapt to the physical impacts of climate change, develop and resource planning system, our teams have access to deploy LETs and engage in the policy debate, we continue to best-in-class business processes, standard metrics and reports. identify and assess the impacts of climate change on our portfolio. Our focus on productivity has significantly improved operating We have a robust corporate planning process that includes testing performance at each of our Businesses. During the year, the resilience of our portfolio and investment decisions against we delivered a nine per cent increase in Group production a range of future scenarios. (on a copper equivalent basis). Further information on our sustainability commitments, standards Our long-term commitment to improve productivity across our and performance can be found in section 1.14 of this Annual Report. Company continues to create significant value for shareholders. Additional information is also available in the Sustainability Report 2015, This year, our productivity initiatives delivered US4.1 billion which can be found online at w w w . bhpbilliton . com . in productivity gains (excludes Discontinued operations). This means that over the last three years, our productivity initiatives have delivered more than US10 billion in productivity gains. CASE STUDY: Increased truck performance at Copper’s Escondida Mine Objective: To increase ultra-class haul truck production time. Approach: Escondida benchmarked its truck performance and maintenance activities, both internally and externally, and reviewed how it conducted truck maintenance and shift activities to identify improvement opportunities. A range of initiatives were implemented to improve haul truck production time. Less frequent and larger blasts were used to reduce interruptions to production. Trucks were only taken out of production for preventative maintenance determined by equipment condition, rather than by time in service. The mine also implemented new crib huts and shift relief, called ‘hot seating’, to keep the trucks moving. Outcomes: Escondida has set a new internal BHP Billiton benchmark for sustainable ultra-class haul truck performance. In FY2015, truck utilisation of available time increased to 83 per cent from 75 per cent in the previous year. This allowed the operation to move 438 million tonnes of material, an increase of six per cent compared to FY2014. Productivity results: During FY2015, Escondida decreased its mine production unit costs by 10 per cent through its productivity initiatives. BHP Billiton Annual Report 2015 17M A R C G I O N R S n o i t a c o l l 1 Strategic Report continued 1.6.3 Disciplined approach to capital management Our priorities for capital management remain unchanged. A strong balance sheet The quality of our assets and adherence to our strategy has Our solid ‘A’ credit rating provides flexibility and access to debt differentiated our performance and maximised shareholder capital markets. Despite the reduction in commodity prices broadly returns by allocating capital in a disciplined manner. over FY2015, the Group maintained a strong balance sheet and reduced net debt by five per cent to US24.4 billion. Improved Our diversified and high-margin portfolio delivers a higher return operating and capital productivity supported by our flexible on capital with lower volatility, when compared with many peers. investment program generated free cash flow of US6.3 billion. Over the last 10 years, we have returned US67 billion to shareholders in the form of dividends and buy-backs. During FY2015, the Group issued a three tranche Euro denominated bond under its Euro Medium Term Note Programme, comprising Many of the areas to which we direct our cash flow are �600 million Floating Rate Notes due 2020 paying interest at interconnected. In order to make capital allocation decisions, three-month Euribor plus 35 basis points, �650 million 0.75 per cent we test each decision against a range of short-term and long-term bonds due 2022 and �750 million 1.50 per cent bonds due 2030. criteria across several scenarios. We aim to optimise for net present The Group also priced a five-year A1.0 billion note issue under value (NPV), return on capital (ROC), internal rate of return (IRR) and its Australian Medium Term Note Program, paying interest at margin, while remaining mindful of portfolio construction and cash 3.00 per cent due 2020. flow at risk. No single metric can dominate the process given the potential to create imbalances and all alternatives actively compete. In August 2014, the Group redeemed all outstanding Petrohawk Energy Corporation 7.25 per cent Senior Notes due August 2018 Our portfolio remains a key point of difference. However, because and 6.25 per cent Senior Notes due June 2019 at the applicable it is opportunity-rich, capital discipline is more important. call prices. The aggregate principal value of the notes redeemed By reducing annual expenditure, we have created even more was approximately US1.8 billion. competition for capital and we have sharpened our focus on our core commodities and our high-margin major basins. The Group has a US6.0 billion commercial paper program backed by a US6.0 billion revolving credit facility. The facility expires in Given our portfolio of long-life orebodies, we also consider the May 2020 and has a one-year extension option. As at 30 June 2015, value of future options as we must preserve their value at low cost. the Group had USnil outstanding in the US commercial paper Our approach to capital management is illustrated market and the Group’s cash and cash equivalents on hand were in the diagram below. US6.8 billion. Internal competition for capital investment By reducing annual capital and exploration expenditure and increasing competition for capital within the Group, we have prioritised higher quality growth at a higher average rate of return on incremental investment. We continue to invest selectively in those projects that are capital efficient and have high return growth. During the year, three major projects achieved first Maximise production, namely: shareholder • The Escondida Oxide Leach Area Project (OLAP) was completed returns in November 2014. The Project involved the creation of a new dynamic leaching pad and mineral handling system that included several overland conveyors. The new pad is expected to maintain oxide leaching capacity at current levels. OLAP was approved in February 2012 with budgeted expenditure of US721 million (US414 million BHP Billiton share) and a US212 million increase in the budget of OLAP to US933 million (US536 million BHP Billiton share) was approved in March 2014. Expected final cost is US899 million (US517 million BHP Billiton share). The following factors are considered when making capital • In March 2011, we approved the third expansion of the Hay Point allocation decisions: Coal Terminal. The expansion of the terminal will deliver an additional 11 Mt of annual port capacity (100 per cent basis). Progressive dividend The project investment has a budget of US1.5 billion BHP Billiton remains committed to a progressive dividend policy. (BHP Billiton share). In January 2015, first coal was loaded The aim of this policy is to steadily increase or at least maintain through the expanded terminal and the project was the dividend per share in US dollars at each half-yearly payment. 97.6 per cent complete as at 30 June 2015. On 25 August 2015, the Board determined a final dividend for • The Escondida Organic Growth Project 1 (OGP1) is a new the year of 62 US cents per share. Together with the interim concentrator with a 152 kilotonnes per day (ktpd) plant. dividend of 62 US cents per share paid to shareholders We expect this project to provide additional processing capacity on 31 March 2015, this brought the total dividend determined and allow access to high-grade ore. OGP1 was approved in for the year to 124 US cents per share, a two per cent increase over February 2012 with budgeted expenditure of US3.8 billion the previous year’s full-year dividend of 121 US cents per share. (US2.2 billion BHP Billiton share). A US361 million increase in the budget of OGP1 to US4.2 billion (US 2.4 billion Year ended 30 June 2015 2014 2013 BHP Billiton share) was approved in October 2014 following Dividends determined in respect of the period (US cents per share) challenges associated with contractor’s progress. The Project was completed in May 2015 and is currently in the commissioning Interim dividend 59.0 57.0 62.0 and ramp-up phase. Final dividend 62.0 62.0 59.0 At the end of FY2015, BHP Billiton had four major projects under 124.0 121.0 116.0 development with a combined budget of US7.0 billion. Information in this section has been presented on a Continuing operations basis to exclude the contribution from assets that were demerged with South32, unless otherwise noted. Details of the contribution of the South32 assets to the Group’s results are disclosed in note 29 ‘Discontinued operations’ to the Financial Statements. 18 BHP Billiton Annual Report 2015 a l a t i p a I C V R P R N

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