Form 20-F/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F/A

Amendment No. 1

 

 

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED 30 JUNE 2016

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from                      to                     

 

Commission file number: 001-09526   Commission file number: 001-31714
BHP BILLITON LIMITED   BHP BILLITON PLC
(ABN 49 004 028 077)   (REG. NO. 3196209)
(Exact name of Registrant as specified in its charter)   (Exact name of Registrant as specified in its charter)
VICTORIA, AUSTRALIA   ENGLAND AND WALES
(Jurisdiction of incorporation or organisation)   (Jurisdiction of incorporation or organisation)

171 COLLINS STREET, MELBOURNE,

VICTORIA 3000 AUSTRALIA

(Address of principal executive offices)

 

NOVA SOUTH, 160 VICTORIA STREET

LONDON, SW1E 5LB

UNITED KINGDOM

  (Address of principal executive offices)

 

 

Securities registered or to be registered pursuant to section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on

which registered

 

Title of each class

 

Name of each exchange on

which registered

American Depositary Shares*

  New York Stock Exchange   American Depositary Shares*   New York Stock Exchange

Ordinary Shares**

  New York Stock Exchange  

Ordinary Shares, nominal

value US$0.50 each**

  New York Stock Exchange

 

* Evidenced by American Depositary Receipts. Each American Depositary Receipt represents two ordinary shares of BHP Billiton Limited or BHP Billiton Plc, as the case may be.
** Not for trading, but only in connection with the listing of the applicable American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

     BHP Billiton Limited    BHP Billiton Plc

Fully Paid Ordinary Shares

   3,211,691,105    2,112,071,796

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐

   International Financial Reporting Standards as issued by the International Accounting
Standards Board  ☒
   Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

 

 


EXPLANATORY NOTE

This Amendment No. 1 to Form 20-F (this “Amendment” or “Form 20-F/A”) amends the annual report on Form 20-F for the fiscal year ended 30 June 2016 (the “Original Filing”) filed jointly by BHP Billiton Limited and BHP Billiton Plc with the Securities and Exchange Commission (the “SEC”) on 21 September 2016 (the “Original Filing Date”). As used in this Amendment, the terms BHP, the Company and the Group refer to the combined group, including BHP Billiton Limited and BHP Billiton Plc and their respective subsidiary companies.

BHP is filing this Amendment to revise (i) the Report of Independent Registered Certified Public Accounting Firms of KPMG and KPMG LLP appearing in Part III, Item 18, Financial Statements, regarding the effectiveness of the Group’s internal control over financial reporting as at 30 June 2016; and (ii) management’s assessment of the effectiveness of the Group’s internal control over financial reporting as at 30 June 2016 and the disclosure on the effectiveness of the Group’s disclosure controls and procedures in Part II, Item 15, Controls and Procedures. These revisions are to reflect management’s conclusion that there was a material weakness in the controls over the determination of which deferred income tax balances to include in the carrying values of the Onshore US assets and market participant assumptions used to measure fair value less costs of disposal (FVLCD) for impairment assessment purposes. While isolated to the Onshore US assets, this material weakness was identified subsequent to the Original Filing Date, and as a result the Group is amending its overall assessment of effectiveness of internal control over financial reporting and disclosure controls and procedures.

Management has concluded that, notwithstanding the identification of the material weakness, the Group’s financial position and the consolidated financial statements included in the Original Filing for the years ended 30 June 2016 and 30 June 2015 present fairly, in all material respects, the financial position of the Group as at such dates and the results of operations and cash flows for the periods presented.

Pursuant to Rule 12b-15 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), the certifications required pursuant to Rule 13a-14 of the Exchange Act, and the consent of the independent registered public accounting firms that were included as exhibits to the Original Filing, have been re-executed as of the date of this Amendment and are included as Exhibits 12.1, 12.2, 13.1, 13.2 and 15.1, respectively.

This Amendment, including the exhibits, only describes events as at the Original Filing Date, and does not reflect events that may have occurred subsequent to the Original Filing Date. Other than as described above, this Amendment does not and does not purport to amend, update or revise in any way the disclosures made in the Original Filing, including, without limitation, the financial statements and accompanying notes. This Amendment should be read in conjunction with the Original Filing and other information that BHP has filed or furnished to the SEC subsequent to the Original Filing Date.

 

1


PART II, ITEM 15. Controls and procedures

Management’s assessment of our internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our CEO and CFO, the effectiveness of the Company’s internal control over financial reporting had been evaluated based on the framework and criteria established in Internal Controls - Integrated Framework (2013), issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management had previously concluded that internal control over financial reporting was effective as at 30 June 2016. Subsequent to that evaluation, management identified a failure in reviews performed to distinguish between entity specific assumptions and market participant assumptions, including the application of deferred income taxes, in determining impairment of the Onshore US assets. Based on this reassessment, management has concluded that, although the Group’s consolidated financial statements included in the Original Filing fairly present, in all material respects, the financial position of the Group as at 30 June 2016 and 30 June 2015 and the results of operations and cash flows for the periods presented, a material weakness in internal control over financial reporting existed as at 30 June 2016.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Group’s annual or interim financial statements will not be prevented or detected on a timely basis by the Group’s internal controls.

Management concluded that the controls over the determination of which deferred income tax balances to include in the carrying values of the Onshore US assets and market participant assumptions used to measure FVLCD were ineffective for impairment assessment purposes as at 30 June 2016 and 30 June 2015. The material weakness arose due to a lack of understanding, by both the process owner and control operator, of how to distinguish between assumptions specific to BHP and those of a market participant, including the application of deferred income taxes, in determining impairment of the Onshore US assets.

These control deficiencies did not result in a material misstatement to, or restatement of, the Company’s consolidated financial statements for the years ended 30 June 2016 and 30 June 2015. However, while isolated to the Onshore US assets, the control deficiencies created a reasonable possibility that a material misstatement to the Group’s consolidated financial statements would not have been prevented or detected on a timely basis. Therefore, management concluded that the deficiencies represented a material weakness in our internal control over financial reporting and that our internal control over financial reporting was not effective as at 30 June 2016.

Our independent registered public accounting firms, KPMG and KPMG LLP, have audited the effectiveness of internal control over financial reporting as at 30 June 2016 and have reissued an adverse report, which is included on pages F-97 and F-98 under Item 18.

Management’s assessment of our disclosure controls and procedures

Management, with the participation of our CEO and CFO, had performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as at 30 June 2016. Disclosure controls and

 

2


procedures are designed to provide reasonable assurance that the material financial and non-financial information required to be disclosed by BHP, including in the reports that it files or submits under the Exchange Act, is recorded, processed, summarised and reported on a timely basis and that such information is accumulated and communicated to BHP’s management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Further, in the design and evaluation of our disclosure controls and procedures, management was required to apply its judgement in evaluating the costs benefit relationship of possible controls and procedures.

At the time of the Original Filing, the disclosure controls and procedures were considered effective as at 30 June 2016. Subsequent to that evaluation, management identified a material weakness due to a lack of understanding, by both the process owner and control operator, of how to distinguish between entity specific assumptions and market participant assumptions, including the application of deferred income taxes, in determining impairment of the Onshore US assets. Accordingly, our management, including the CEO and CFO have, after considering the existence of the material weakness described above, concluded that our disclosure controls and procedures were not effective as at 30 June 2016. Management has amended the Original Filing to give effect to this change in assessment.

Notwithstanding the material weakness in our internal control over financial reporting, BHP performed additional procedures that have allowed management to conclude that, the consolidated financial statements included in the Original Filing fairly present, in all material respects, the Group’s financial position, results of operations and cash flows for the periods presented in conformity with IFRS as issued by the IASB.

Changes in Internal Control over Financial Reporting

Except for the material weakness described above, there have been no changes in our internal control over financial reporting during the year ended 30 June 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation of material weakness

The Group has initiated remediation efforts to address the abovementioned material weakness. The remediation steps include the following:

 

  Strengthening of the underlying control procedures relating to the consideration of assumptions that determine FVLCD and input into the carrying value assessments;

 

  Education and improved awareness of control owners and those charged with oversight to ensure consistent awareness and practices across all functions responsible for the inputs, processing and outputs associated with the carrying value assessment and impairment process; and

 

  Enhancement of templates with additional guidance provided to assist in consistent consideration of factors in determining the appropriate carrying value of assets or cash generating units.

Management expects the remediation activities will be effective to remediate the material weakness. However, the material weakness in the Group’s internal control over financial reporting will not be considered remediated until management has concluded, through testing, that these controls operate effectively. Management expects

 

3


that the remediation of this material weakness will be completed by the time of filing of the Group’s Form 20-F for the year ended 30 June 2017.

In addition, the Group has reviewed the wider impairment controls suite and underlying control procedures to enhance the design and documentation of controls and increase the precision at which the controls operate.

 

4


PART III, ITEM 18. Financial Statements

5    Financial Statements

Contents of Financial Statements

 

About these Financial Statements

     F-1  

5.1 Consolidated Financial Statements

     F-2  

5.1.1 Consolidated Income Statement

     F-2  

5.1.2 Consolidated Statement of Comprehensive Income

     F-3  

5.1.3 Consolidated Balance Sheet

     F-4  

5.1.4 Consolidated Cash Flow Statement

     F-5  

5.1.5 Consolidated Statement of Changes in Equity

     F-6  

5.1.6 Notes to Financial Statements

     F-12  

5.1.6 Notes to Financial Statements

     F-12  

Performance

     F-12  

1.

  Segment reporting      F-12  

2.

  Exceptional items      F-15  

3.

  Significant events – Samarco dam failure      F-17  

4.

  Expenses and other income      F-26  

5.

  Income tax expense      F-27  

6.

  Earnings per share      F-32  

Working capital

     F-33  

7.

  Trade and other receivables      F-33  

8.

  Trade and other payables      F-34  

9.

  Inventories      F-34  

Resource assets

     F-35  

10.

  Property, plant and equipment      F-35  

11.

  Intangible assets      F-40  

12.

  Impairment of non-current assets      F-41  

13.

  Deferred tax balances      F-45  

14.

  Closure and rehabilitation provisions      F-48  

Capital structure

     F-50  

15.

  Share capital      F-50  

16.

  Other equity      F-52  

17.

  Dividends      F-54  

18.

  Provisions for dividends and other liabilities      F-55  

Financial management

     F-56  

19.

  Net debt      F-56  

20.

  Net finance costs      F-59  

21.

  Financial risk management      F-59  

Employee matters

     F-68  

22.

  Key management personnel      F-68  

23.

  Employee share ownership plans      F-69  

24.

  Employee benefits, restructuring and post-retirement employee benefits provisions      F-72  

25.

  Pension and other post-retirement obligations      F-74  

Group and related party information

     F-76  

26.

  Discontinued operations      F-76  

27.

  Subsidiaries      F-77  

28.

  Investments accounted for using the equity method      F-78  

29.

  Interests in joint operations      F-83  

30.

  Related party transactions      F-84  


Unrecognised items and uncertain events

     F-85  

31.

  Commitments      F-85  

32.

  Contingent liabilities      F-86  

33.

  Subsequent events      F-87  

Other items

     F-87  

34.

  Acquisitions and disposals of subsidiaries, operations, joint operations and equity accounted investments      F-87  

35.

  Auditor’s remuneration      F-89  

36.

  Not required for US reporting      F-89  

37.

  Deed of Cross Guarantee      F-89  

38.

  New and amended accounting standards and interpretations issued but not yet effective      F-92  

39.

  Reserve estimates      F-92  

5.2

  Not required for US reporting      F-94  

5.3

  Directors’ declaration      F-94  

5.4

  Statement of Directors’ responsibilities in respect of the Annual Report and the Financial Statements      F-95  

5.5

  Not required for US reporting      F-95  

5.6

  Reports of Independent Registered Public Accounting Firms      F-96  

5.7

  Supplementary oil and gas information – unaudited      F-99  


About these Financial Statements

Reporting entity

In 2001, BHP Billiton Limited (previously known as BHP Limited), an Australian-listed company, and BHP Billiton Plc (previously known as Billiton Plc), a UK listed company, ‘the Companies’, entered into a Dual Listed Company (DLC) merger. The Companies and their subsidiaries operate together as a single for-profit economic entity (referred to as ‘the Group’) with a common Board of Directors, unified management structure and joint objectives. In effect, the DLC structure provides the same voting rights and dividend entitlements from the Group irrespective of whether investors hold shares in BHP Billiton Limited or BHP Billiton Plc.

Group and related party information is presented in note 30 ‘Related party transactions’ detailing the Group’s subsidiaries, associates, joint arrangements and the nature of transactions between these and other related parties. The nature of the operations and principal activities of the Group are described in the segment information (refer to note 1 ‘Segment reporting’).

Presentation of the Consolidated Financial Statements

A review has been undertaken to identify opportunities to make the Financial Statements more user friendly, simpler and easier to understand, while complying with the financial reporting obligations.

This review included:

 

  focusing disclosures on material items and important information;

 

  reorganisation of the notes to the Financial Statements into sections that will assist users in understanding the Group’s financial performance and financial position;

 

  integration of relevant accounting policies and information on key judgements within the notes to accompanying the financial information to enhance users understanding of key financial line items;

 

  use of simplified language and explanations.

BHP Billiton’s Directors have included information in this report they deem to be material and relevant to the understanding of the Financial Statements. Disclosure may be considered material and relevant if the dollar amount is significant due to size or nature, or the information is important to understand the:

 

  Group’s current year results;

 

  impact of significant changes in BHP Billiton’s business; or

 

  aspects of the Group’s operations that are important to future performance.

These Consolidated Financial Statements were approved by the Board of Directors on 8 September 2016. The Directors have the authority to amend the Financial Statements after issuance.

 

F-1


5.1    Consolidated Financial Statements

5.1.1    Consolidated Income Statement for the year ended 30 June 2016

 

    Notes     2016     2015     2014  
          US$M     US$M     US$M  

Continuing operations

       

Revenue

    1       30,912       44,636       56,762  

Other income

    4       444       496       1,225  

Expenses excluding net finance costs

    4       (35,487     (37,010     (36,523

(Loss)/profit from equity accounted investments, related impairments and expenses

    28       (2,104     548       1,185  
   

 

 

   

 

 

   

 

 

 

(Loss)/profit from operations

      (6,235     8,670       22,649  
   

 

 

   

 

 

   

 

 

 

Financial expenses

      (1,161     (702     (995

Financial income

      137       88       81  
   

 

 

   

 

 

   

 

 

 

Net finance costs

    20       (1,024     (614     (914
   

 

 

   

 

 

   

 

 

 

(Loss)/profit before taxation

      (7,259     8,056       21,735  
   

 

 

   

 

 

   

 

 

 

Income tax benefit/(expense)

      1,297       (2,762     (6,266

Royalty-related taxation (net of income tax benefit)

      (245     (904     (514
   

 

 

   

 

 

   

 

 

 

Total taxation benefit/(expense)

    5       1,052       (3,666     (6,780
   

 

 

   

 

 

   

 

 

 

(Loss)/profit after taxation from Continuing operations

      (6,207     4,390       14,955  
   

 

 

   

 

 

   

 

 

 

Discontinued operations

       

(Loss)/profit after taxation from Discontinued operations

    26             (1,512     269  
   

 

 

   

 

 

   

 

 

 

(Loss)/profit after taxation from Continuing and Discontinued operations

      (6,207     2,878       15,224  
   

 

 

   

 

 

   

 

 

 

Attributable to non-controlling interests

      178       968       1,392  

Attributable to owners of BHP Billiton Group

      (6,385     1,910       13,832  
   

 

 

   

 

 

   

 

 

 

Basic (loss)/earnings per ordinary share (cents)

    6       (120.0     35.9       260.0  

Diluted (loss)/earnings per ordinary share (cents)

    6       (120.0     35.8       259.1  

Basic (loss)/earnings from Continuing operations per ordinary share (cents)

    6       (120.0     65.5       256.5  

Diluted (loss)/earnings from Continuing operations per ordinary share (cents)

    6       (120.0     65.3       255.7  
   

 

 

   

 

 

   

 

 

 

Dividends per ordinary share – paid during the period (cents)

    17       78.0       124.0       118.0  

Dividends per ordinary share – determined in respect of the period (cents)

    17       30.0       124.0       121.0  
   

 

 

   

 

 

   

 

 

 

The accompanying notes form part of these Financial Statements.

 

F-2


5.1.2    Consolidated Statement of Comprehensive Income for the year ended 30 June 2016

 

     Notes      2016     2015     2014  
            US$M     US$M     US$M  

(Loss)/profit after taxation from Continuing and Discontinued operations

        (6,207     2,878       15,224  

Other comprehensive income

         

Items that may be reclassified subsequently to the income statement:

         

Available for sale investments:

         

Net valuation gains/(losses) taken to equity

        2       (21     (15

Net valuation losses/(gains) transferred to the income statement

        1       (115     (14

Cash flow hedges:

         

(Losses)/gains taken to equity

        (566     (1,797     681  

Losses/(gains) transferred to the income statement

        664       1,815       (678

Exchange fluctuations on translation of foreign operations taken to equity

        (1     (2     (1

Exchange fluctuations on translation of foreign operations transferred to income statement

        (10            

Tax recognised within other comprehensive income

     5        (30     29       3  
     

 

 

   

 

 

   

 

 

 

Total items that may be reclassified subsequently to the income statement

        60       (91     (24
     

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to the income statement:

         

Remeasurement (losses)/gains on pension and medical schemes

        (20     (28     57  

Tax recognised within other comprehensive income

     5        (17     (17     12  
     

 

 

   

 

 

   

 

 

 

Total items that will not be reclassified to the income statement

        (37     (45     69  
     

 

 

   

 

 

   

 

 

 

Total other comprehensive income/(loss)

        23       (136     45  
     

 

 

   

 

 

   

 

 

 

Total comprehensive (loss)/income

        (6,184     2,742       15,269  
     

 

 

   

 

 

   

 

 

 

Attributable to non-controlling interests

        176       973       1,392  

Attributable to owners of BHP Billiton Group

        (6,360     1,769       13,877  
     

 

 

   

 

 

   

 

 

 

 

The accompanying notes form part of these Financial Statements.

 

F-3


5.1.3    Consolidated Balance Sheet as at 30 June 2016

 

     Notes      2016     2015  
            US$M     US$M  

ASSETS

       

Current assets

       

Cash and cash equivalents

     19        10,319       6,753  

Trade and other receivables

     7        3,155       4,321  

Other financial assets

     21        121       83  

Inventories

     9        3,411       4,292  

Current tax assets

        567       658  

Other

        141       262  
     

 

 

   

 

 

 

Total current assets

        17,714       16,369  
     

 

 

   

 

 

 

Non-current assets

       

Trade and other receivables

     7        867       1,499  

Other financial assets

     21        2,680       1,159  

Inventories

     9        764       466  

Property, plant and equipment

     10        83,975       94,072  

Intangible assets

     11        4,119       4,292  

Investments accounted for using the equity method

     28        2,575       3,712  

Deferred tax assets

     13        6,147       2,861  

Other

        112       150  
     

 

 

   

 

 

 

Total non-current assets

        101,239       108,211  
     

 

 

   

 

 

 

Total assets

        118,953       124,580  
     

 

 

   

 

 

 

LIABILITIES

       

Current liabilities

       

Trade and other payables

     8        5,389       7,389  

Interest bearing liabilities

     19        4,653       3,201  

Other financial liabilities

     21        5       251  

Current tax payable

        451       207  

Provisions

     3, 14, 18, 24        1,765       1,676  

Deferred income

        77       129  
     

 

 

   

 

 

 

Total current liabilities

        12,340       12,853  
     

 

 

   

 

 

 

Non-current liabilities

       

Trade and other payables

     8        13       29  

Interest bearing liabilities

     19        31,768       27,969  

Other financial liabilities

     21        1,778       1,031  

Deferred tax liabilities

     13        4,324       4,542  

Provisions

     3, 14, 18, 24        8,381       7,306  

Deferred income

        278       305  
     

 

 

   

 

 

 

Total non-current liabilities

        46,542       41,182  
     

 

 

   

 

 

 

Total liabilities

        58,882       54,035  
     

 

 

   

 

 

 

Net assets

        60,071       70,545  
     

 

 

   

 

 

 

EQUITY

       

Share capital – BHP Billiton Limited

        1,186       1,186  

Share capital – BHP Billiton Plc

        1,057       1,057  

Treasury shares

        (33     (76

Reserves

     16        2,538       2,557  

Retained earnings

        49,542       60,044  
     

 

 

   

 

 

 

Total equity attributable to owners of BHP Billiton Group

        54,290       64,768  

Non-controlling interests

     16        5,781       5,777  
     

 

 

   

 

 

 

Total equity

        60,071       70,545  
     

 

 

   

 

 

 

The accompanying notes form part of these Financial Statements.

The Financial Statements were approved by the Board of Directors on 8 September 2016 and signed on its behalf by:

 

Jac Nasser AO

   Andrew Mackenzie

Chairman

   Chief Executive Officer

 

F-4


5.1.4    Consolidated Cash Flow Statement for the year ended 30 June 2016

 

     Notes      2016     2015     2014  
            US$M     US$M     US$M  

Operating activities

         

(Loss)/profit before taxation from Continuing operations

        (7,259     8,056       21,735  

Adjustments for:

         

Non-cash or non-operating exceptional items

        9,645       3,196       (551

Depreciation and amortisation expense

        8,661       9,158       7,716  

Impairments of property, plant and equipment, financial assets and intangibles

        210       828       478  

Net finance costs

        1,024       614       914  

Share of operating profit of equity accounted investments

        (276     (548     (1,185

Other

        459       503       95  

Changes in assets and liabilities:

         

Trade and other receivables

        1,714       1,431       (349

Inventories

        527       151       (158

Trade and other payables

        (1,661     (990     238  

Provisions and other assets and liabilities

        (373     (779     385  
     

 

 

   

 

 

   

 

 

 

Cash generated from operations

        12,671       21,620       29,318  

Dividends received

        301       740       1,264  

Interest received

        128       86       120  

Interest paid

        (830     (627     (915

Net income tax and royalty-related taxation refunded

        641       348       1,064  

Net income tax and royalty-related taxation paid

        (2,286     (4,373     (7,211
     

 

 

   

 

 

   

 

 

 

Net operating cash flows from Continuing operations

        10,625       17,794       23,640  
     

 

 

   

 

 

   

 

 

 

Net operating cash flows from Discontinued operations

     26              1,502       1,724  
     

 

 

   

 

 

   

 

 

 

Net operating cash flows

        10,625       19,296       25,364  
     

 

 

   

 

 

   

 

 

 

Investing activities

         

Purchases of property, plant and equipment

        (6,946     (11,947     (15,224

Exploration expenditure

        (765     (816     (986

Exploration expenditure expensed and included in operating cash flows

        430       670       698  

Net investment and funding of equity accounted investments

        40       117       (29

Proceeds from sale of assets

        107       74       66  

Proceeds from divestment of subsidiaries, operations and joint operations, net of their cash

     34        166       256       812  

Other investing

        (277     144       (471
     

 

 

   

 

 

   

 

 

 

Net investing cash flows from Continuing operations

        (7,245     (11,502     (15,134
     

 

 

   

 

 

   

 

 

 

Net investing cash flows from Discontinued operations

     26              (1,066     (700
     

 

 

   

 

 

   

 

 

 

Cash disposed on demerger of South32

     26              (586      
     

 

 

   

 

 

   

 

 

 

Net investing cash flows

        (7,245     (13,154     (15,834
     

 

 

   

 

 

   

 

 

 

Financing activities

         

Proceeds from interest bearing liabilities

        7,239       3,440       6,000  

Proceeds/(settlements) from debt related instruments

        156       (33     37  

Repayment of interest bearing liabilities

        (2,788     (4,135     (7,048

Proceeds from ordinary shares

              9       14  

Contributions from non-controlling interests

              53       1,435  

Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts

        (106     (355     (368

Dividends paid

        (4,130     (6,498     (6,387

Dividends paid to non-controlling interests

        (87     (554     (119
     

 

 

   

 

 

   

 

 

 

Net financing cash flows from Continuing operations

        284       (8,073     (6,436
     

 

 

   

 

 

   

 

 

 

Net financing cash flows from Discontinued operations

     26              (203     (32
     

 

 

   

 

 

   

 

 

 

Net financing cash flows

        284       (8,276     (6,468
     

 

 

   

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents from Continuing operations

        3,664       (1,781     2,070  

Net increase in cash and cash equivalents from Discontinued operations

     26              233       992  

Cash and cash equivalents, net of overdrafts, at the beginning of the financial year

        6,613       8,752       5,667  

Cash disposed on demerger of South32

     26              (586      

Foreign currency exchange rate changes on cash and cash equivalents

        (1     (5     23  
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, net of overdrafts, at the end of the financial year

     19        10,276       6,613       8,752  
     

 

 

   

 

 

   

 

 

 

The accompanying notes form part of these Financial Statements.

 

F-5


5.1.5    Consolidated Statement of Changes in Equity for the year ended 30 June 2016

 

    Attributable to owners of BHP Billiton Group              
    Share capital     Treasury shares     Reserves     Retained
earnings
    Total equity
attributable
to owners
of BHP
Billiton
Group
    Non-
controlling
interests
    Total
equity
 

US$M

  BHP
Billiton
Limited
    BHP
Billiton

Plc
    BHP
Billiton
Limited
    BHP
Billiton

Plc
           

Balance as at 1 July 2015

    1,186       1,057       (19     (57     2,557       60,044       64,768       5,777       70,545  

Total comprehensive loss

                            60       (6,420     (6,360     176       (6,184

Transactions with owners:

                 

Purchase of shares by ESOP Trusts

                (106                       (106           (106

Employee share awards exercised net of employee contributions

                118       31       (193     46       2             2  

Employee share awards forfeited

                            (26     26                    

Accrued employee entitlement for unexercised awards

                            140             140             140  

Dividends

                                  (4,154     (4,154     (172     (4,326
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2016

    1,186       1,057       (7     (26     2,538       49,542       54,290       5,781       60,071  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-6


    Attributable to owners of BHP Billiton Group              
    Share capital     Treasury shares     Reserves     Retained
earnings
    Total equity
attributable
to owners
of BHP
Billiton
Group
    Non-
controlling
interests
    Total
equity
 

US$M

  BHP
Billiton
Limited
    BHP
Billiton

Plc
    BHP
Billiton
Limited
    BHP
Billiton

Plc
           

Balance as at 1 July 2014

    1,186       1,069       (51     (536     2,927       74,548       79,143       6,239       85,382  

Total comprehensive income

                            (96     1,865       1,769       973       2,742  

Transactions with owners:

                 

Shares cancelled

          (12           501       12       (501                  

Purchase of shares by ESOP Trusts

                (232     (123                 (355           (355

Employee share awards exercised net of employee contributions and other adjustments

                264       99       (461     101       3             3  

Employee share awards forfeited

                            (13     13                    

Accrued employee entitlement for unexercised awards

                            247             247             247  

Distribution to option holders

                            (1           (1     (1     (2

Dividends

                                  (6,596     (6,596     (639     (7,235

In-specie dividend on demerger – refer to note 26 ‘Discontinued operations’

                                  (9,445     (9,445           (9,445

Equity contributed

                            1             1       52       53  

Transfers within equity on demerger

                            (59     59                    

Conversion of controlled entities to equity accounted investments

                      2                   2       (847     (845
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2015

    1,186       1,057       (19     (57     2,557       60,044       64,768       5,777       70,545  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-7


    Attributable to owners of BHP Billiton Group              
    Share capital     Treasury shares     Reserves     Retained
earnings
    Total equity
attributable
to owners
of BHP
Billiton
Group
    Non-
controlling
interests
    Total
equity
 

US$M

  BHP
Billiton
Limited
    BHP
Billiton

Plc
    BHP
Billiton
Limited
    BHP
Billiton

Plc
           

Balance as at 1 July 2013

    1,186       1,069       (8     (532     1,970       66,982       70,667       4,624       75,291  

Total comprehensive income

                            (24     13,901       13,877       1,392       15,269  

Transactions with owners:

                 

Purchase of shares by ESOP Trusts

                (290     (78                 (368           (368

Employee share awards exercised net of employee contributions

                247       74       (221     (91     9             9  

Employee share awards forfeited

                            (32     32                    

Accrued employee entitlement for unexercised awards

                            247             247             247  

Distribution to option holders

                            (2           (2     (2     (4

Dividends

                                  (6,276     (6,276     (252     (6,528

Equity contributed

                            989             989       477       1,466  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 30 June 2014

    1,186       1,069       (51     (536     2,927       74,548       79,143       6,239       85,382  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The accompanying notes form part of these Financial Statements.

 

F-8


Basis of preparation

The Group’s financial report as at and for the year ended 30 June 2016:

 

  is a consolidated general purpose financial report;

 

  has been prepared in accordance with the requirements of the:

 

  ¡    Australian Corporations Act 2001;

 

  ¡    UK Companies Act 2006;

 

  has been prepared in accordance with accounting standards and interpretations collectively referred to as ‘IFRS’ in this report, which encompass the:

 

  ¡    International Financial Reporting Standards and interpretations as issued by the International Accounting Standards Board;

 

  ¡    Australian Accounting Standards, being Australian equivalents to International Financial Reporting Standards and interpretations as issued by the Australian Accounting Standards Board (AASB);

 

  ¡    International Financial Reporting Standards and interpretations adopted by the European Union (EU);

 

  is prepared on a going concern basis;

 

  measures items on the basis of historical cost principles, except for the following items:

 

  ¡    derivative financial instruments and certain other financial assets, which are carried at fair value;

 

  ¡    non-current assets or disposal groups that are classified as held-for-sale or held-for-distribution, which are measured at the lower of carrying amount and fair value less cost to dispose;

 

  includes significant accounting policies in the notes to the Financial Statements that summarise the recognition and measurement basis used and are relevant to an understanding of the Financial Statements;

 

  applies a presentation currency of US dollars, consistent with the predominant functional currency of the Group’s operations. Amounts are rounded to the nearest million dollars, unless otherwise stated, in accordance with ASIC (Rounding in Financial/Directors’ Reports) Instrument 2016/191;

 

  presents reclassified comparative information where required for consistency with the current year’s presentation;

 

  adopts all new and amended standards and interpretations under IFRS issued by the relevant bodies (listed above), that are mandatory for application beginning on or after 1 July 2015. None had a significant impact on the Financial Statements;

 

  has not early adopted any standards and interpretations that have been issued or amended but are not yet effective.

The accounting policies have been consistently applied by all entities included in the Financial Statements and are consistent with those applied in all prior years presented.

Principles of consolidation

In preparing the Financial Statements the effects of all intragroup balances and transactions have been eliminated.

A list of significant entities in the Group, including subsidiaries, joint arrangements and associates at year-end is contained in note 27 ‘Subsidiaries’, note 28 ‘Investments accounted for using the equity method’ and note 29 ‘Interests in joint operations’.

 

F-9


Subsidiaries: The Financial Statements of the Group include the consolidation of BHP Billiton Limited, BHP Billiton Plc and their respective subsidiaries being the entities controlled by the parent entities during the year. Control exists where the Group is:

 

  exposed to, or has rights to, variable returns from its involvement with the entity;

 

  has the ability to affect those returns through its power to direct the activities of the entity.

The ability to approve the operating and capital budget of a subsidiary and the ability to appoint key management personnel are decisions that demonstrate that the Group has the existing rights to direct the relevant activities of a subsidiary. Where the Group’s interest is less than 100 per cent, the interest attributable to outside shareholders is reflected in non-controlling interests. The Financial Statements of subsidiaries are prepared for the same reporting period as the Group, using consistent accounting policies. The acquisition method of accounting is used to account for the Group’s business combinations.

Joint arrangements: The Group undertakes a number of business activities through joint arrangements, which exist when two or more parties have joint control. Joint arrangements are classified as either joint operations or joint ventures, based on the contractual rights and obligations between the parties to the arrangement.

The Group has two types of joint arrangements:

 

  Joint operations: A joint operation is an arrangement in which the Group shares joint control, primarily via contractual arrangements with other parties. In a joint operation, the Group has rights to the assets and obligations for the liabilities relating to the arrangement. This includes situations where the parties benefit from the joint activity through a share of the output, rather than by receiving a share of the results of trading. In relation to the Group’s interest in a joint operation, the Group recognises: its share of assets and liabilities; revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the joint operation; and its share of expenses. All such amounts are measured in accordance with the terms of the arrangement, which is usually in proportion to the Group’s interest in the joint operation.

 

  Joint ventures: A joint venture is a joint arrangement in which the parties that share joint control have rights to the net assets of the arrangement. A separate vehicle, not the parties, will have the rights to the assets and obligations to the liabilities relating to the arrangement. More than an insignificant share of output from a joint venture is sold to third parties, which indicates the joint venture is not dependent on the parties to the arrangement for funding, nor do the parties have an obligation for the liabilities of the arrangement. Joint ventures are accounted for using the equity accounting method.

Associates: The Group accounts for investments in associates using the equity accounting method. An entity is considered an associate where the Group is deemed to have significant influence but not control or joint control. Significant influence is presumed to exist where the Group:

 

  has over 20 per cent of the voting rights of an entity, unless it can be clearly demonstrated that this is not the case;

 

  holds less than 20 per cent of the voting rights of an entity; however, has the power to participate in the financial and operating policy decisions affecting the entity.

The Group uses the term ‘equity accounted investments’ to refer to joint ventures and associates collectively.

Foreign currencies

Transactions related to the Group’s worldwide operations are conducted in a number of foreign currencies. The majority of operations have assessed US dollars as the functional currency; however, some subsidiaries, joint arrangements and associates have functional currencies other than US dollars.

 

F-10


Monetary items denominated in foreign currencies are translated into US dollars as follows:

 

Foreign currency item

  

Applicable exchange rate

Transactions

  

Date of underlying transaction

Monetary assets and liabilities

  

Period-end rate

Foreign exchange gains and losses resulting from translation are recognised in the income statement, except for qualifying cash flow hedges (which are deferred to equity) and foreign exchange gains or losses on foreign currency provisions for site closure and rehabilitation costs (which are capitalised in property, plant and equipment for operating sites).

On consolidation, the assets, liabilities, income and expenses of non-US dollar denominated functional operations are translated into US dollars using the following applicable exchange rates:

 

Foreign currency amount

  

Applicable exchange rate

Income and expenses

  

Date of underlying transaction

Assets and liabilities

  

Period-end rate

Equity

  

Historical date

Reserves

  

Historical and period-end rate

Foreign exchange differences resulting from translation are initially recognised in the foreign currency translation reserve and subsequently transferred to the income statement on disposal of a foreign operation.

 

Critical accounting policies, judgements and estimates

The Group has identified a number of critical accounting policies under which significant judgements, estimates and assumptions are made. Actual results may differ for these estimates under different assumptions and conditions. This may materially affect financial results and the financial position to be reported in future.

These critical accounting policies are embedded within the following notes:

 

Note

      

  5

     Taxation

  9

     Inventories

10

     Exploration and evaluation

10

     Development expenditure

10

     Overburden removal costs

10

     Depreciation of property, plant and equipment

10, 11 and 12

     Property, plant and equipment, Intangible assets and Impairments of non-current assets – recoverable amount

14

     Closure and rehabilitation provisions

39

     Reserve estimates

 

F-11


5.1.6    Notes to Financial Statements

Performance

1.    Segment reporting

Reportable segments

The Group operated four reportable segments during FY2016 aligned with the commodities that are extracted and marketed, reflecting the structure used by the Group’s management to assess the performance of the Group.

 

Reportable segment

  

Principal activities

Petroleum

  

Exploration, development and production of oil and gas

Copper

  

Mining of copper, silver, lead, zinc, molybdenum, uranium and gold

Iron Ore

  

Mining of iron ore

Coal

  

Mining of metallurgical coal and thermal (energy) coal

The segment reporting information for comparative periods has been presented on a Continuing operations basis to exclude the contribution from assets that were demerged with South32.

Group and unallocated items includes functions, other unallocated operations including Potash (previously disclosed in the former Petroleum and Potash reportable segment), Nickel West and consolidation adjustments. Comparative information for the years ended 30 June 2015 and 30 June 2014 have been restated for the effects of the change in reporting related to Potash. Revenue not attributable to reportable segments comprises the sale of freight and fuel to third parties, as well as revenues from unallocated operations. Exploration and technology activities are recognised within relevant segments.

 

Year ended 30 June 2016

US$M

   Petroleum     Copper     Iron Ore     Coal     Group and
unallocated
items/
eliminations
    BHP
Billiton
Group
 

Revenue

     6,776       8,249       10,516       4,518       853       30,912  

Inter-segment revenue

     118             22             (140      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     6,894       8,249       10,538       4,518       713       30,912  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBITDA

     3,658       2,619       5,599       635       (171     12,340  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortisation

     (4,147     (1,560     (1,817     (890     (247     (8,661

Impairment losses

     (48     (17     (42     (94     (9     (210
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBIT

     (537     1,042       3,740       (349     (427     3,469  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exceptional items

     (7,184           (2,388           (132     (9,704

Net finance costs

               (1,024
            

 

 

 

(Loss)/profit before taxation

               (7,259
            

 

 

 

Capital expenditure (cash basis)

     2,517       2,786       1,061       298       284       6,946  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit from equity accounted investments, related impairments and expenses

     (7     155       (2,244     (9     1       (2,104
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments accounted for using the equity method

     280       1,388             901       6       2,575  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     30,476       26,143       24,330       12,754       25,250       118,953  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     5,308       2,299       3,789       2,103       45,383       58,882  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-12


Year ended 30 June 2015

US$M

Restated

   Petroleum     Copper     Iron Ore     Coal     Group and
unallocated
items/
eliminations
    BHP
Billiton
Group
 

Revenue

     11,180       11,453       14,649       5,885       1,469       44,636  

Inter-segment revenue

     267             104             (371      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     11,447       11,453       14,753       5,885       1,098       44,636  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBITDA

     7,201       5,205       8,648       1,242       (444     21,852  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortisation

     (4,738     (1,545     (1,698     (875     (302     (9,158

Impairment losses

     (477     (307     (18     (19     (7     (828
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBIT

     1,986       3,353       6,932       348       (753     11,866  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exceptional items

     (2,787                       (409     (3,196

Net finance costs

               (614
            

 

 

 

Profit before taxation

               8,056  
            

 

 

 

Capital expenditure (cash basis)

     5,023       3,822       1,930       729       443       11,947  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit from equity accounted investments, related impairments and expenses

           175       371       1       1       548  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments accounted for using the equity method

     287       1,422       1,044       956       3       3,712  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     40,325       26,340       26,808       14,182       16,925       124,580  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     6,722       2,639       2,854       2,413       39,407       54,035  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Year ended 30 June 2014

US$M

Restated

   Petroleum     Copper     Iron Ore     Coal     Group and
unallocated
items/
eliminations
    BHP
Billiton
Group
 

Revenue

     14,571       12,789       21,143       6,563       1,696       56,762  

Inter-segment revenue

     262             213             (475      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     14,833       12,789       21,356       6,563       1,221       56,762  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBITDA

     9,826       6,127       13,531       1,258       (450     30,292  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortisation

     (3,945     (1,371     (1,464     (683     (253     (7,716

Impairment (losses)/reversals

     (309     (88     35             (116     (478
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Underlying EBIT

     5,572       4,668       12,102       575       (819     22,098  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exceptional items

           551                         551  

Net finance costs

               (914
            

 

 

 

Profit before taxation

               21,735  
            

 

 

 

Capital expenditure (cash basis)

     5,879       3,697       2,949       1,971       728       15,224  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit from equity accounted investments, related impairments and expenses

     (4     438       607       140       4       1,185  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investments accounted for using the equity method

     115       1,386       1,069       1,079       15       3,664  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     44,576       24,255       27,412       14,919       40,251       151,413  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     7,317       2,258       4,022       3,010       49,424       66,031  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

F-13


Geographical information

 

     Revenue by location of customer  
     2016      2015      2014  
     US$M      US$M      US$M  

Australia

     1,846        2,205        3,106  

Europe

     1,161        2,465        3,436  

China

     13,177        16,337        21,873  

Japan

     2,941        4,863        6,305  

India

     1,478        1,680        2,009  

South Korea

     1,919        2,688        4,104  

Rest of Asia

     2,833        4,734        3,816  

North America

     4,470        7,990        9,607  

South America

     899        1,342        1,994  

Rest of world

     188        332        512  
  

 

 

    

 

 

    

 

 

 
     30,912        44,636        56,762  
  

 

 

    

 

 

    

 

 

 

 

     Non-current assets by location of assets  
     2016      2015      2014  
     US$M      US$M      US$M  

Australia

     49,465        52,109        60,408  

North America

     23,943        33,091        35,845  

South America

     15,965        15,831        15,926  

Rest of world (a)

     3,038        3,160        8,193  

Unallocated assets (b)

     8,828        4,020        8,745  
  

 

 

    

 

 

    

 

 

 
     101,239        108,211        129,117  
  

 

 

    

 

 

    

 

 

 

 

(a) FY2014 includes US$4,570 million of Southern Africa non-current assets predominantly disposed as part of the South32 demerger.

 

(b) Unallocated assets comprise deferred tax assets and other financial assets.

Underlying EBITDA

Underlying EBITDA is earnings before net finance costs, depreciation, amortisation and impairments, taxation expense, Discontinued operations and any exceptional items. Underlying EBITDA includes BHP Billiton’s share of (loss)/profit from investments accounted for using the equity method including net finance costs, depreciation, amortisation and impairments and taxation expense.

Underlying EBITDA is the key non-IFRS measure that management uses internally to assess the performance of the Group’s segments and make decisions on the allocation of resources and, in the Group’s view is more relevant to capital intensive industries with long-life assets. In past periods, the Group has reported Underlying EBIT as a key non-IFRS measure of operating results. Management believes focusing on Underlying EBITDA more closely reflects the operating cash generative capacity and hence the underlying performance of the Group’s business. Management also uses this measure because financing structures and tax regimes differ across the Group’s assets and substantial components of the Group’s tax and interest charges are levied at a Group level rather than an operational level. We exclude exceptional items from Underlying EBITDA in order to enhance the comparability of the measure from period-to-period and provide clarity to the underlying performance of the Group’s operations. Management monitors exceptional items separately.

 

F-14


Segment assets and liabilities

Total segment assets and liabilities of reportable segments represents operating assets net of operating liabilities, including the carrying amount of equity accounted investments and predominantly excludes cash balances, loans to associates, interest bearing liabilities and deferred tax balances. The carrying value of investments accounted for using the equity method represents the balance of the Group’s investment in equity accounted investments, with no adjustment for any cash balances, interest bearing liabilities and deferred tax balances of the equity accounted investment.

Recognition and measurement

Revenue

Revenue is measured at the fair value of the consideration received or receivable.

Sale of products

Revenue is recognised when the risk and rewards of ownership of the goods have passed to the buyer based on agreed delivery terms and it can be measured reliably. Depending on customer terms this can be based on issuance of a bill of lading or when delivery is completed as per the agreement with the Group’s customers.

Provisionally priced sales

Revenue on provisionally priced sales is initially recognised at the estimated fair value of consideration receivable with reference to the relevant forward and/or contractual price and the determined mineral or hydrocarbon specifications. Subsequently, provisionally priced sales are marked to market at each reporting period up until when final pricing and settlement is confirmed with the fair value adjustment recognised in revenue in the period identified. Refer to note 21 ‘Financial risk management’ for details of provisionally priced sales open at reporting period-end. The period between provisional pricing and final invoicing is typically between 60 and 120 days.

2.    Exceptional items

Exceptional items are those items where their nature and amount is considered material to the Financial Statements. Such items included within the Group’s loss for the year are detailed below:

 

Year ended 30 June 2016

   Gross     Tax     Net  
     US$M     US$M     US$M  

Exceptional items by category

      

Samarco dam failure

     (2,450     253       (2,197

Impairment of Onshore US assets (a)

     (7,184     2,300       (4,884

Global taxation matters

     (70     (500     (570
  

 

 

   

 

 

   

 

 

 

Total

     (9,704     2,053       (7,651
  

 

 

   

 

 

   

 

 

 

 

(a)  Includes amounts attributable to non-controlling interests of US$(51) million after tax benefit.

 

F-15


Samarco Mineração S.A. (Samarco) dam failure

The exceptional loss of US$2,450 million (before tax) related to the Samarco dam failure in November 2015 comprises the following:

 

Year ended 30 June 2016

   US$M  

Share of loss relating to the Samarco dam failure

     (655

Impairment of the carrying value of the investment in Samarco

     (525

Samarco dam failure provision

     (1,200

Costs incurred directly by BHP Billiton in relation to the Samarco dam failure

     (70
  

 

 

 

Loss from equity accounted investments, related impairments and expenses (a)

     (2,450
  

 

 

 

 

(a)  BHP Billiton Brasil Ltda has adjusted its investment in Samarco to US$ nil (resulting from US$(655) million share of loss from Samarco and US$(525) million impairment), recognised a provision of US$(1,200) million for potential obligations under the Framework Agreement and together with other BHP Billiton entities incurred US$(70) million of direct costs in relation to the Samarco dam failure. US$(572) million of the US$(1,200) million provision represents an additional share of loss from Samarco with the remaining US$(628) million recognised as provision expense. Refer to note 3 ‘Significant events – Samarco dam failure’ for further information.

Impairment of Onshore US assets

The Group recognised an impairment charge of US$4,884 million (after tax benefit) against the carrying value of its Onshore US assets in the year ended 30 June 2016. The impairment reflects changes to price assumptions, discount rates and development plans. This follows significant volatility and much weaker prices experienced in the oil and gas industry, which have more than offset the Group’s substantial productivity improvements.

Global taxation matters

Global taxation matters include amounts provided for unresolved tax matters and other claims for which the timing of resolution and potential economic outflow are uncertain.

 

Year ended 30 June 2015

   Gross     Tax     Net  
     US$M     US$M     US$M  

Exceptional items by category

      

Impairment of Onshore US assets

     (2,787     829       (1,958

Impairment of Nickel West assets

     (409     119       (290

Repeal of Minerals Resource Rent Tax legislation (a)

           (698     (698
  

 

 

   

 

 

   

 

 

 

Total

     (3,196     250       (2,946
  

 

 

   

 

 

   

 

 

 

 

(a)  Includes amounts attributable to non-controlling interests of US$(12) million.

Impairment of Onshore US assets

The Group recognised an impairment charge of US$1,958 million (after tax benefit) in relation to its Onshore US assets. The gas-focused Hawkville field accounts for the substantial majority of this charge reflecting its geological complexity, product mix, acreage relinquishments and amended development plans. The remainder relates to the impairment of goodwill associated with the Petrohawk acquisition.

 

F-16


Impairment of Nickel West assets

The Group announced on 12 November 2014 that the review of its Nickel West business was complete and the preferred option, the sale of the business, was not achieved on an acceptable basis. As a result of operational decisions made subsequent to the conclusion of this process, an impairment charge of US$290 million (after tax benefit) was recognised in the year ended 30 June 2015.

Repeal of Minerals Resource Rent Tax legislation

The legislation to repeal the Minerals Resource Rent Tax (MRRT) in Australia took effect on 30 September 2014. As a result, the Group derecognised a MRRT deferred tax asset of US$809 million and corresponding taxation charges of US$698 million related to Continuing operations and US$111 million related to Discontinued operations were recognised in the year ended 30 June 2015.

 

Year ended 30 June 2014

   Gross      Tax     Net  
     US$M      US$M     US$M  

Exceptional items by category

       

Sale of Pinto Valley

     551        (166     385  
  

 

 

    

 

 

   

 

 

 

Total

     551        (166     385  
  

 

 

    

 

 

   

 

 

 

Sale of Pinto Valley

The Group announced on 11 October 2013 that it had completed the sale of its Pinto Valley mining operation for a cash consideration of US$653 million, after working capital adjustments. A gain on sale of US$385 million (after tax expense) was recognised in the year ended 30  June 2014.

3.    Significant events – Samarco dam failure

On 5 November 2015, the Samarco Mineração S.A. (Samarco) iron ore operation in Minas Gerais, Brazil, experienced a tailings dam failure that resulted in a release of mine tailings, flooding the community of Bento Rodrigues and impacting other communities downstream (Samarco dam failure). Refer to section 1.4 ‘Samarco’.

Samarco is jointly owned by BHP Billiton Brasil Ltda (BHP Billiton Brasil) and Vale S.A. (Vale). BHP Billiton Brasil’s 50 per cent interest is accounted for as an equity accounted joint venture investment. BHP Billiton Brasil does not separately recognise its share of the underlying assets and liabilities of Samarco, but instead records the investment as one line on the balance sheet. Each period, BHP Billiton Brasil recognises its 50 per cent share of Samarco’s profit or loss and adjusts the carrying value of the investment in Samarco accordingly. Such adjustment continues until the investment carrying value is reduced to US$ nil, with any additional share of Samarco losses only recognised to the extent that BHP Billiton Brasil has an obligation to fund the losses, or when future investment funding is provided. After applying equity accounting, any remaining carrying value of the investment is tested for impairment.

Any charges relating to the Samarco dam failure incurred directly by BHP Billiton Brasil or other BHP Billiton entities are recognised 100 per cent in the Group’s results.

 

F-17


The financial impacts of the Samarco dam failure on the Group’s income statement, balance sheet and cash flow statement for the year ended 30 June 2016 are shown in the table below and have been treated as an exceptional item. The table below does not include BHP Billiton Brasil’s share of the results of Samarco prior to the Samarco dam failure, which is disclosed in note 28 ‘Investments accounted for using the equity method’, along with the summary financial information related to Samarco as at 30 June 2016.

 

Financial impacts of Samarco dam failure             

Year ended 30 June 2016

            
           US$M  

Income statement

    

Expenses excluding net finance costs

    

– Costs incurred directly by BHP Billiton Brasil and other BHP Billiton entities in relation to the Samarco dam failure (a)

       (70

(Loss)/profit from equity accounted investments, related impairments and expenses

    

– Share of loss relating to the Samarco dam failure (b)

       (655

– Impairment of the carrying value of the investment in Samarco (b)

       (525

– Samarco dam failure provision (b)

       (1,200
    

 

 

 

Loss before taxation

       (2,450

Income tax benefit

       253  
    

 

 

 

Loss after taxation

       (2,197
    

 

 

 

Balance sheet movement

    

Trade and other payables

       (11

Investments accounted for using the equity method

       (1,180

Deferred tax assets

       (158

Provisions

       (1,200

Deferred tax liabilities

       411  
    

 

 

 

Net liabilities

       (2,138
    

 

 

 

Cash flow statement

    

Loss before taxation

       (2,450

Comprising:

    

Costs incurred directly by BHP Billiton Brasil and other BHP Billiton entities in relation to the Samarco dam failure (a) 

     (70  

Share of loss relating to the Samarco dam failure (b) 

     (655  

Impairment of the carrying value of the investment in Samarco (b) 

     (525  

Samarco dam failure provision (b) 

     (1,200  

Non-cash items

       2,391  
    

 

 

 

Net operating cash flows

       (59
    

 

 

 

 

(a)  Includes legal and advisor costs incurred.

 

(b)  BHP Billiton Brasil has adjusted its investment in Samarco to US$ nil (resulting from US$(655) million share of loss from Samarco and US$(525) million impairment) and recognised a provision of US$(1,200) million for potential obligations under the Framework Agreement (defined on page F-20). US$(572) million of the US$(1,200) million provision represents an additional share of loss from Samarco with the remaining US$(628) million recognised as provision expense.

 

F-18


Equity accounted investment in Samarco

The following table details the movement in the carrying value of BHP Billiton Brasil’s equity accounted investment in Samarco:

 

Year ended 30 June 2016

      
     US$M  

At the beginning of the financial year

     1,044  

Share of operating profit prior to the Samarco dam failure

     136  

Share of loss relating to the Samarco dam failure (a)

     (655

Impairment of the carrying value of the investment in Samarco (a)

     (525

Samarco dam failure provision (a)

     (1,200
  

 

 

 

(Loss)/profit from equity accounted investments, related impairments and expenses

     (2,244
  

 

 

 

Loss and expenses recognised as a provision for Samarco dam failure (b)

     1,200  

Dividends received (c)

      

Investment

      
  

 

 

 

At the end of the financial year

      
  

 

 

 

 

(a)  BHP Billiton Brasil has adjusted its investment in Samarco to US$ nil (resulting from US$(655) million share of loss from Samarco and US$(525) million impairment) and recognised a provision of US$(1,200) million for potential obligations under the Framework Agreement (defined below). US$(572) million of the US$(1,200) million provision represents an additional share of loss from Samarco with the remaining US$(628) million recognised as provision expense.

 

(b)  As the investment carrying value has been adjusted to US$ nil, additional share of Samarco losses US$(572) million and Samarco dam failure provision expense US$(628) million are included in the provision for Samarco dam failure. This reflects BHP Billiton Brasil’s US$(1,200) million potential legal funding obligation to the Foundation as a result of the Framework Agreement (defined below).

 

(c)  Samarco currently does not have profits available for distribution and is legally prevented from paying previously declared and unpaid dividends.

At the half year ended 31 December 2015, the Group assessed the recoverability of its investment in light of uncertainties surrounding the nature and timing of ongoing future operations. As a result, an impairment charge of US$525 million was recognised, reducing the investment balance to US$ nil.

As described below, the Group has recognised a provision of US$1,200 million at 30 June 2016 in respect of BHP Billiton Brasil’s potential obligation under the Framework Agreement (defined below). This reflects the ongoing uncertainty surrounding the nature and timing of a potential restart of Samarco’s operations. In doing so, the Group has recognised BHP Billiton Brasil’s share of all losses recognised by Samarco to 30 June 2016.

 

F-19


Provision for Samarco dam failure

 

Year ended 30 June 2016

      
     US$M  

At the beginning of the financial year

      

Provision recognition, comprising:

  

– Share of loss relating to the Samarco dam failure

     572  

– Samarco dam failure provision expense

     628  
  

 

 

 

At the end of the financial year

     1,200  
  

 

 

 

Comprising:

  

Current

     300  

Non-current

     900  
  

 

 

 

Dam failure provisions and contingencies

As at 30 June 2016, BHP Billiton Brasil has identified provisions and contingent liabilities arising as a consequence of the Samarco dam failure as follows:

Environment and socio-economic remediation

Framework Agreement

On 2 March 2016, BHP Billiton Brasil, together with Samarco and Vale, entered into a Framework Agreement (Agreement) with the Federal Attorney General of Brazil, the states of Espírito Santo and Minas Gerais and certain other public authorities to establish a Foundation that will develop and execute environmental and socio-economic programs to remediate and provide compensation for damage caused by the Samarco dam failure. On 5 May 2016, the Agreement was ratified by the Federal Court of Appeal suspending the public civil claim disclosed below.

The Federal Prosecutor’s Office appealed the ratification of the Agreement and on 30 June 2016, the Superior Court of Justice in Brazil issued a preliminary order (Interim Order) suspending the 5 May 2016 ratification of the Agreement.

Samarco, Vale and BHP Billiton Brasil have appealed the Interim Order before the Superior Court of Justice.

The term of the Agreement is 15 years, renewable for periods of one year successively until all obligations under the Agreement have been performed. Under the Agreement, Samarco is responsible for funding the Foundation with calendar year contributions as follows:

 

  R$2 billion (approximately US$620 million) in 2016, less the amount of funds already spent on, or allocated to, remediation and compensation activity;

 

  R$1.2 billion (approximately US$370 million) in 2017;

 

  R$1.2 billion (approximately US$370 million) in 2018;

 

  R$500 million (approximately US$155 million) for a special project to be spent on sewage treatment and landfill works from 2016 to 2018.

Annual contributions for each of the years 2019, 2020 and 2021 will be in the range of R$800 million (approximately US$250 million) and R$1.6 billion (approximately US$500 million), depending on the remediation and compensation projects which are to be undertaken in the particular year. Annual contributions may be reviewed under the Agreement. To the extent that Samarco does not meet its funding obligations under the Agreement, each of Vale and BHP Billiton Brasil has potential funding obligations under the Agreement in proportion to its 50 per cent shareholding in Samarco.

 

F-20


Mining and processing operations remain suspended following the dam failure. Samarco is currently progressing plans to resume operations, however significant uncertainties surrounding the nature and timing of ongoing future operations remain. In light of these uncertainties and based on currently available information, BHP Billiton Brasil has recognised a provision of US$1,200 million before tax and after discounting at 30 June 2016, in respect of its potential obligations under the Agreement.

The measurement of the provision requires the use of estimates and assumptions and may be affected by, amongst other factors, potential changes in scope of work required under the Agreement including further technical analysis, costs incurred in respect of programs delivered, resolution of uncertainty in respect of operational restart, updates to discount and foreign exchange rates, resolution of existing and potential legal claims and the status of the Agreement. As a result, future actual expenditures may differ from the amounts currently provided and changes to key assumptions and estimates could result in a material impact to the amount of the provision in future reporting periods.

On 28 July 2016, BHP Billiton Brasil approved US$134 million to support the Foundation, in the event that Samarco does not meet its funding obligations under the Agreement. Any support to the Foundation provided by BHP Billiton Brasil will be offset against the provision for the Samarco dam failure recognised at 30 June 2016.

Legal

The following matters are disclosed as contingent liabilities:

BHP Billiton Brasil is among the companies named as defendants in a number of legal proceedings initiated by individuals, non-governmental organisations (NGOs), corporations and governmental entities in Brazilian federal and state courts following the Samarco dam failure. The other defendants include Vale and Samarco. The lawsuits include claims for compensation, environmental rehabilitation and violations of Brazilian environmental and other laws, among other matters. The lawsuits seek various remedies, including rehabilitation costs, compensation to injured individuals and families of the deceased, recovery of personal and property losses, moral damages and injunctive relief. These legal proceedings include civil public actions filed by state prosecutors in Minas Gerais (claiming damages of approximately R$7.5 billion, US$2.3 billion), public defenders in Minas Gerais (claiming damages of approximately R$10 billion, US$3.1 billion) and state prosecutors in Espírito Santo (claiming damages of approximately R$2 billion, US$620 million). Given the preliminary status of all these proceedings, and the duplicative nature of the damages sought in these proceedings and the R$20 billion (US$6.2 billion) and R$155 billion (US$48 billion) claims noted below, it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for BHP Billiton Brasil.

In addition, government inquiries and investigations relating to the Samarco dam failure have been commenced by numerous agencies of the Brazilian government and are ongoing.

Public civil claim

Among the claims brought against BHP Billiton Brasil, is a public civil claim commenced by the Federal Government of Brazil, the states of Espírito Santo, Minas Gerais and other public authorities on 30 November 2015, seeking the establishment of a fund of up to R$20 billion (approximately US$6.2 billion) in aggregate for clean-up costs and damages.

On 2 March 2016, BHP Billiton Brasil, together with Samarco and Vale, entered into the Agreement. Ratification of the Agreement by the Federal Court of Appeal on 5 May 2016 suspended this public civil claim. However, it was reinstated on 30 June 2016 upon issue of the Interim Order by the Superior Court of Justice in Brazil. As noted above, BHP Billiton Brasil has recognised a provision as of 30 June 2016 of US$1,200 million after tax and discounting in respect of its potential obligations under the Agreement. While an appeal has been commenced against the Interim Order, given the status of the appeal it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for BHP Billiton Brasil in relation to the R$20 billion (approximately US$6.2 billion) claim.

 

F-21


Federal Public Prosecution Office claim

BHP Billiton Brasil is among the defendants named in a claim brought by the Federal Public Prosecution Office on 3 May 2016, seeking R$155 billion (approximately US$48 billion) for reparation, compensation and moral damages in relation to the Samarco dam failure. Given the preliminary status of these proceedings, it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for BHP Billiton Brasil.

Class action complaint

In February 2016, a putative class action complaint (Complaint) was filed in the U.S. District Court for the Southern District of New York on behalf of purchasers of American Depository Receipts of BHP Billiton Ltd and Plc between 25 September 2014 and 30 November 2015 against BHP Billiton Ltd and Plc and certain of its current and former executive officers and directors. The Complaint asserts claims under U.S. federal securities laws and indicates that the plaintiff will seek certification to proceed as a class action.

The amount of damages sought by the plaintiff on behalf of the putative class is unspecified. Given the preliminary status of this matter, it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures to BHP Billiton.

Other claims

Additional lawsuits and government investigations relating to the Samarco dam failure may be brought against BHP Billiton Brasil and possibly other BHP Billiton entities in Brazil or other jurisdictions.

BHP Billiton’s potential liabilities, if any, resulting from other pending and future claims, lawsuits and enforcement actions relating to the Samarco dam failure, together with the potential cost of implementing remedies sought in the various proceedings, cannot be reliably estimated at this time and therefore a provision has not been recognised and nor has any contingent liability been quantified for such matters.

Ultimately, all the legal matters disclosed as contingent liabilities could have a material adverse impact on BHP Billiton’s business, competitive position, cash flows, prospects, liquidity and shareholder returns.

BHP Billiton Insurance

BHP Billiton has third party liability insurance for claims related to the Samarco dam failure made directly against BHP Billiton Brasil or other BHP Billiton entities. Such claims may be externally insured up to US$360 million (when adjusted for BHP Billiton Brasil’s interest in Samarco). External insurers have been advised of the Samarco dam failure although no formal claim has currently been made under the policy. At 30 June 2016, an insurance receivable has not been recognised for any potential recoveries under insurance arrangements.

Commitments

Under the terms of the Samarco joint venture agreement, BHP Billiton Brasil does not have an existing obligation to fund Samarco.

On 28 July 2016, BHP Billiton Brasil made available a short-term facility to Samarco of up to US$116 million to carry out remediation and stabilisation work and support Samarco’s operations. Funds will be released to Samarco only as required and subject to the achievement of key milestones.

Any additional requests for funding or future investment provided would be subject to a future decision, accounted for at that time.

 

F-22


The following section includes disclosure required by IFRS of Samarco Mineração S.A.’s provisions, contingencies and other matters arising from the dam failure.

Samarco

Dam failure related provisions and contingencies

As at 30 June 2016 Samarco has identified provisions and contingent liabilities arising as a consequence of the Samarco dam failure as follows:

Environment and socio-economic remediation

Framework Agreement

On 2 March 2016, Samarco, together with Vale and BHP Billiton Brasil, entered into a Framework Agreement (Agreement) with the Federal Attorney General of Brazil, the states of Espírito Santo and Minas Gerais and certain other public authorities to establish a Foundation that will develop and execute environmental and socio-economic programs to remediate and provide compensation for damage caused by the Samarco dam failure. On 5 May 2016, the Agreement was ratified by the Federal Court of Appeal suspending the public civil claim disclosed below.

The Federal Prosecutor’s Office appealed the ratification of the Agreement and on 30 June 2016, the Superior Court of Justice in Brazil issued a preliminary order (Interim Order) suspending the 5 May 2016 ratification of the Agreement.

Samarco, Vale and BHP Billiton Brasil have appealed the Interim Order before the Superior Court of Justice.

The term of the Agreement is 15 years, renewable for periods of one year successively until all obligations under the Agreement have been performed. Under the Agreement, Samarco is responsible for funding the Foundation with calendar year contributions as follows:

 

    R$2 billion (approximately US$620 million) in 2016, less the amount of funds already spent on, or allocated to, remediation and compensation activity;  

 

    R$1.2 billion (approximately US$370 million) in 2017;

 

    R$1.2 billion (approximately US$370 million) in 2018;  

 

    R$500 million (approximately US$155 million) for a special project to be spent on sewage treatment and landfill works from 2016 to 2018.  

Annual contributions for each of the years 2019, 2020 and 2021 will be in the range of R$800 million (approximately US$250 million) and R$1.6 billion (approximately US$500 million), depending on the remediation and compensation projects which are to be undertaken in the particular year. Annual contributions may be reviewed under the Agreement.

As at 30 June 2016, Samarco has a provision of US$2,400 million before tax and after discounting, in relation to its obligations under the Agreement based on currently available information. The measurement of the provision requires the use of estimates and assumptions and may be affected by, amongst other factors, potential changes in scope of work required under the Agreement including further technical analysis, costs incurred in respect of programs delivered, resolution of uncertainty in respect of operational restart, updates to discount and foreign exchange rates, resolution of existing and potential legal claims and the status of the Agreement. As a result, future actual expenditures may differ from the amounts currently provided and changes to key assumptions and estimates could result in a material impact to the amount of the provision in future reporting periods.

 

F-23


Other

As at 30 June 2016, Samarco has recognised provisions of US$172 million, in addition to its obligations under the Agreement, based on currently available information. The magnitude, scope and timing of these additional costs are subject to a high degree of uncertainty and Samarco has indicated that it anticipates that it will incur future costs beyond those provided. These uncertainties are likely to continue for a significant period and changes to key assumptions could result in a material change to the amount of the provision in future reporting periods. Any such unrecognised obligations are therefore contingent liabilities and, at present, it is not practicable to estimate their magnitude or possible timing of payment. Accordingly, it is also not possible to provide a range of possible outcomes or a reliable estimate of total potential future exposures at this time.

Legal

Samarco has been named as defendant in a number of legal proceedings initiated by individuals, NGOs, corporations and governmental entities in Brazilian federal and state courts following the Samarco dam failure. These lawsuits include claims for compensation, environmental rehabilitation and violations of Brazilian environmental and other laws, among other matters. The lawsuits seek various remedies, including rehabilitation costs, compensation to injured individuals and families of the deceased, recovery of personal and property losses, moral damages and injunctive relief. These legal proceedings include civil public actions filed by state prosecutors in Minas Gerais (claiming damages of approximately R$7.5 billion, US$2.3 billion), public defenders in Minas Gerais (claiming damages of approximately R$10 billion, US$3.1 billion), and state prosecutors in Espírito Santo (claiming damages of approximately R$2 billion, US$620 million). Given the preliminary status of all these proceedings, and the duplicative nature of the damages sought in these proceedings and the R$20 billion (US$6.2 billion) and R$155 billion (US$48 billion) claims noted below, it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for Samarco.

In addition, government investigations of the Samarco dam failure by numerous agencies of the Brazilian government have commenced and are ongoing.

Public civil claim

Among the claims brought against Samarco, is a public civil claim commenced by the Federal Government of Brazil, the states of Espírito Santo, Minas Gerais and other public authorities on 30 November 2015, seeking the establishment of a fund of up to R$20 billion (approximately US$6.2 billion) in aggregate for clean-up costs and damages.

On 2 March 2016, Samarco, together with Vale and BHP Billiton Brasil, entered into the Agreement. Ratification of the Agreement by the Federal Court of Appeal on 5 May 2016 suspended this public civil claim. However, it was reinstated on 30 June 2016 upon issue of the Interim Order by the Superior Court of Justice in Brazil. As noted above, Samarco has recognised a provision as of 30 June 2016 of US$2,400 million before tax and discounting in respect of its potential obligations under the Agreement. While an appeal has been commenced against the Interim Order, given the status of the appeal it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for Samarco in relation to the R$20 billion (approximately US$6.2 billion) claim.

Federal Public Prosecution Office claim

Samarco is among the defendants named in a claim brought by the Federal Public Prosecution Office on 3 May 2016, seeking R$155 billion (approximately US$48 billion) for reparation, compensation and moral damages in relation to the Samarco dam failure. Given the preliminary status of these proceedings, it is not possible at this time to provide a range of possible outcomes or a reliable estimate of potential future exposures for Samarco.

 

F-24


Other claims

Other pending lawsuits and investigations are at the early stages of proceedings. Until further facts are developed; court rulings clarify the issues in dispute, liability and damages; trial activity nears, or other actions such as possible settlements occur, it is not possible to arrive at a range of outcomes or a reliable estimate of Samarco’s obligations arising from these matters and therefore Samarco has not recognised a provision or quantified a contingent liability.

Additional claims may be brought against Samarco. A provision has not been made by Samarco for claims yet to be filed. Given the significant uncertainties surrounding possible outcomes it is not possible for Samarco to arrive at a range of outcomes or a reliable estimate of the liability for any unfiled claims.

Samarco Insurance

Samarco has standalone insurance policies in place with Brazilian and global insurers. Samarco has notified insurers including those covering property, project and liability risks. Insurers have appointed loss adjusters or claims representatives to investigate and assist with the claims process. The respective adjustment processes for these policies continues. An insurance receivable has not been recognised by Samarco for any recoveries under insurance arrangements at 30 June 2016.

Samarco Commitments

At 30 June 2016, Samarco has commitments of US$1,482 million (2015: US$2,544 million). Following the dam failure Samarco invoked force majeure clauses in a number of long-term contracts with suppliers and service providers to suspend contractual obligations.

Samarco non-dam failure related contingent liabilities

The following non-dam failure related contingent liabilities pre-date and are unrelated to the Samarco dam failure. Samarco is currently contesting both of these matters in the Brazilian courts. Given the status of the proceedings, the timing of resolution and potential economic outflow are uncertain. BHP Billiton entities have no legal obligation related to these matters.

Brazilian Social Contribution Levy

Samarco has received tax assessments for the alleged non-payment of Brazilian Social Contribution Levy for the calendar years 2008 to 2014 totalling approximately R$3.9 billion (approximately US$1.2 billion).

Brazilian corporate income tax rate

Samarco has received tax assessments for alleged incorrect calculation of Corporate Income Tax (IRPJ) in respect of the 2000 to 2002 and 2007 to 2014 income years totalling approximately R$3.3 billion (approximately US$1.0 billion).

 

F-25


4.    Expenses and other income

 

     2016     2015     2014  
     US$M     US$M     US$M  

Employee benefits expense:

      

Wages, salaries and redundancies

     3,414       4,537       4,799  

Employee share awards

     140       203       214  

Social security costs

     2       2       3  

Pension and other post-retirement obligations

     232       358       529  

Less employee benefits expense classified as exploration and evaluation expenditure

     (86     (129     (132

Raw materials and consumables used

     4,063       4,667       5,540  

Freight and transportation

     2,226       2,644       3,119  

External services

     4,984       6,284       6,780  

Third party commodity purchases

     1,013       1,165       1,702  

Net foreign exchange (gains)/losses

     (153     (469     168  

Government royalties paid and payable

     1,349       1,708       2,412  

Depreciation and amortisation expense

     8,661       9,158       7,716  

Exploration and evaluation expenditure incurred and expensed in the current period

     430       670       698  

Net impairments:

      

Property, plant and equipment

     7,377       3,445       455  

Goodwill and other intangible assets

     17       570       17  

Available for sale financial assets

           9       6  

Operating lease rentals

     528       636       665  

All other operating expenses

     1,290       1,552       1,832  
  

 

 

   

 

 

   

 

 

 

Total expenses

     35,487       37,010       36,523  
  

 

 

   

 

 

   

 

 

 

Gains on divestment of subsidiaries and operations

     (14     (15     (673

Other income

     (430     (481     (552
  

 

 

   

 

 

   

 

 

 

Total other income

     (444     (496     (1,225
  

 

 

   

 

 

   

 

 

 

Other income is generally income earned from transactions outside the course of the Group’s ordinary activities and may include certain management fees from non-controlling interests and joint venture arrangements, dividends income, royalties, commission income and gains or losses on sale of property, plant and equipment.

Recognition and measurement

Income is recognised where it is probable that the economic benefits associated with a transaction will flow to the Group and they can be reliably measured. Dividends are recognised upon declaration.

 

F-26


5.    Income tax expense

 

     2016     2015      2014  
     US$M     US$M      US$M  

Total taxation (benefit)/expense comprises:

       

Current tax expense

     2,456       3,168        6,353  

Deferred tax (benefit)/expense

     (3,508     498        427  
  

 

 

   

 

 

    

 

 

 
     (1,052     3,666        6,780  
  

 

 

   

 

 

    

 

 

 

 

     2016     2015     2014  
     US$M     US$M     US$M  

Factors affecting income tax expense for the year

      

Income tax expense differs to the standard rate of corporation tax as follows:

      

(Loss)/profit before taxation

     (7,259     8,056       21,735  

Tax on (loss)/profit at Australian prima facie tax rate of 30 per cent

     (2,178     2,417       6,521  

Impact of tax rates applicable outside of Australia

     (620     (301     49  

Tax on remitted and unremitted foreign earnings

     (376     58       169  

Recognition of previously unrecognised tax assets

     (36     (212     (45

Investment and development allowance

     (36     (190     (223

Amounts (over)/under provided in prior years

     (28     138       (147

Tax rate changes

     14       137       20  

Foreign exchange adjustments

     125       339       (34

Tax effect of (loss)/profits from equity accounted investments, related impairments and expenses (a)

     631       (164     (356

Non-tax effected operating losses and capital gains

     671       143       11  

Other

     536       397       301  
  

 

 

   

 

 

   

 

 

 

Income tax (benefit)/expense

     (1,297     2,762       6,266  
  

 

 

   

 

 

   

 

 

 

Royalty-related taxation (net of income tax benefit)

     245       904       514  
  

 

 

   

 

 

   

 

 

 

Total taxation (benefit)/expense

     (1,052     3,666       6,780  
  

 

 

   

 

 

   

 

 

 

 

(a)  The (loss)/profits from equity accounted investments, related impairments and expenses is net of income tax. This item removes the prima facie tax effect on such profits, related impairments and expenses.

 

F-27


Income tax recognised in other comprehensive income is as follows:

 

     2016     2015     2014  
     US$M     US$M     US$M  

Income tax effect of:

      

Items that may be reclassified subsequently to the income statement:

      

Available for sale investments:

      

Net valuation gains/(losses) taken to equity

     (1     1       2  

Net valuation gains transferred to the income statement

           34       2  

Cash flow hedges:

      

(Losses)/gains taken to equity

     170       539       (204

Losses/(gains) transferred to the income statement

     (199     (545     203  
  

 

 

   

 

 

   

 

 

 

Income tax (charge)/credit relating to items that may be reclassified subsequently to the income statement

     (30     29       3  
  

 

 

   

 

 

   

 

 

 

Items that will not be reclassified to the income statement:

      

Remeasurement (losses)/gains on pension and medical schemes

     5       14       (6

Employee share awards transferred to retained earnings on exercise

     (22     (31     18  
  

 

 

   

 

 

   

 

 

 

Income tax (charge)/credit relating to items that will not be reclassified to the income statement

     (17     (17     12  
  

 

 

   

 

 

   

 

 

 

Total income tax (charge)/credit relating to components of other comprehensive income (a)

     (47     12       15  
  

 

 

   

 

 

   

 

 

 

 

(a)  Included within total income tax relating to components of other comprehensive income is US$(25) million relating to deferred taxes and US$(22) million relating to current taxes (2015: US$43 million and US$(31) million; 2014: US$(1) million and US$16 million).

 

F-28


Recognition and measurement

Taxation on the (loss)/profit for the year comprises current and deferred tax. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case the tax is recognised in equity.

 

Current tax

  

Deferred tax

  

Royalty-related taxation

Current tax is the expected tax on the taxable income for the year, using tax rates and laws enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years.   

Deferred tax is provided in full, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

 

Deferred tax is not recognised for temporary differences relating to:

 

•       initial recognition of goodwill;

 

•       initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit;

 

•       investment in subsidiaries, associates and jointly controlled entities where the Group is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future.

 

Deferred tax is measured at the tax rates that are expected to be applied when the asset is realised or the liability is settled, based on the laws that have been enacted or substantively enacted at the reporting date.

 

Current and deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset and when the tax balances are related to taxes levied by the same tax authority and the Group intends to settle on a net basis, or realise the asset and settle the liability simultaneously.

   Royalties and resource rent taxes are treated as taxation arrangements (impacting income tax expense/benefit) when they are imposed under government authority and the amount payable is calculated by reference to revenue derived (net of any allowable deductions) after adjustment for temporary differences. Obligations arising from royalty arrangements that do not satisfy these criteria are recognised as current provisions and included in expenses.

 

F-29


Uncertain tax and royalty matters

The Group operates across many tax jurisdictions. Application of tax law can be complex and requires judgement to assess risk and estimate outcomes, particularly in relation to the Group’s cross-border operations and transactions. The evaluation of tax risks considers both amended assessments received and potential sources of challenge from tax authorities. The status of proceedings for these matters will impact the ability to determine the potential exposure and in some cases, it may not be possible to determine a range of possible outcomes or a reliable estimate of the potential exposure.

The Group presently has unresolved tax and royalty matters for which the timing of resolution and potential economic outflow are uncertain. Tax and royalty matters with uncertain outcomes arise in the normal course of business and occur due to changes in tax law, changes in interpretation of tax law, periodic challenges and disagreements with tax authorities, and legal proceedings.

Tax and royalty obligations assessed as having probable future economic outflows capable of reliable measurement are adequately provided for at 30 June 2016. Matters without a probable economic outflow and / or presently incapable of being measured reliably are contingent liabilities and disclosed in note 32 ‘Contingent liabilities’. Irrespective of whether the potential economic outflow of the matter has been assessed as probable or possible, individually significant matters are included below, to the extent that disclosure does not prejudice the Group.

 

Transfer pricing – Sales of commodities to BHP Billiton Marketing AG in Singapore   

The Group is currently in dispute with the Australian Taxation Office (ATO) regarding the price at which the Group’s Australian entities sell commodities to the Group’s principal marketing entity in Singapore, BHP Billiton Marketing AG.

 

In April 2014, the Group received amended assessments for 2003 to 2008 totalling US$270 million (A$362 million) (inclusive of interest and penalties). In May 2016, the Group received further amended assessments totalling US$400 million (A$537 million) (inclusive of interest and penalties) for 2009 to 2013.

 

As a consequence of the finalisation of the transfer pricing audit for 2009 to 2013, the Group also received an amended assessment in relation to its 2013 MRRT return totalling US$87 million (A$117 million).

 

The Group has formally objected to the amended assessments. The ATO has yet to advise its decision on the objections to these amended assessments.

 

The Group has made payments of approximately US$221 million (A$276 million) to the ATO in relation to the assessments under dispute pending resolution of the matter.

Controlled Foreign Companies dispute   

The Group is currently in dispute with the ATO regarding whether profits earned globally by BHP Billiton’s marketing organisation from the on-sale of commodities acquired from Australian subsidiaries of BHP Billiton Plc are subject to ‘top-up tax’ in Australia under the Controlled Foreign Companies rules.

 

The Group received amended assessments for 2006 to 2010 for primary tax of US$76 million (A$102 million), and interest of US$24 million (A$32 million) and penalties of US$19 million (A$26 million) on 7 June 2011 (2006 to 2008 income years) and 19 December 2014 (2009 and 2010 income years). The Group has objected to these amended assessments. On 30 June 2016, the Group received the ATO’s decision relating to the Group’s objection against amended assessments for the 2006 to 2010 income years. The objections were allowed in part by the ATO. The ATO also determined that the Group was not liable for any penalties for the 2006 to 2010 income years. As a result of the objections being determined, it is estimated the primary tax subject to dispute for the 2006 to 2010 income years will total US$32 million (A$43 million).

 

On 26 May 2016, the Group received amended assessments for primary tax of US$12 million (A$16 million) relating to the 2012 and 2013 income years, and interest of US$2 million (A$3 million) (with nil penalties).

 

F-30


Royalty reassessments dispute with Queensland Office of State Revenue   

The Group has lodged applications with the Supreme Court of Queensland pertaining to disputed royalty reassessments issued by the Queensland Office of State Revenue (OSR) in relation to its share of BHP Billiton Mitsubishi Alliance (BMA) coal.

 

The dispute relates to the basis for calculating the value of coal for royalty purposes under Queensland law. The reassessments relate to the period of 1 July 2005 to 30 September 2015. The reassessments total US$168 million (A$225 million) in royalties and US$78 million (A$104 million) in interest (BHP Billiton share).

Samarco tax assessments    Details of uncertain tax and royalty matters relating to Samarco are disclosed in note 3 ‘Significant events – Samarco dam failure’.

 

Key judgements and estimates

Income tax classification

The Group’s accounting policy for taxation, including royalty-related taxation, requires management’s judgement as to the types of arrangements considered to be a tax on income in contrast to an operating cost.

Deferred tax

Judgement is required to determine the amount of deferred tax assets that are recognised based on the likely timing and the level of future taxable profits. The Group assesses the recoverability of recognised and unrecognised deferred taxes, including losses in Australia, the United States and Canada and the recognition of deferred tax assets of capital allowances in Australia, on a consistent basis, using assumptions and projected cash flows as applied in the Group impairment reviews for associated operations.

Deferred tax liabilities arising from temporary differences in investments, caused principally by retained earnings held in foreign tax jurisdictions, are recognised unless repatriation of retained earnings can be controlled and are not expected to occur in the foreseeable future.

 

Uncertain tax matters

Judgements are required about the application of income tax legislation and its interaction with income tax accounting principles. These judgements are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised on the balance sheet and the amount of other tax losses and temporary differences not yet recognised.

Where the final tax outcomes are different from the amounts that were initially recorded, these differences impact the current and deferred tax provisions in the period in which the determination is made.

Measurement of uncertain tax and royalty matters considers a range of possible outcomes, including assessments received from tax authorities. Where management is of the view that potential liabilities have a low probability of crystallising, or it is not possible to quantify them reliably, they are disclosed as contingent liabilities (refer to note 32 ‘Contingent liabilities’).

 

F-31


6.    Earnings per share

 

     2016     2015      2014  

(Loss)/earnings attributable to owners of BHP Billiton Group (US$M)

       

– Continuing operations

     (6,385     3,483        13,648  

– Total

     (6,385     1,910        13,832  

Weighted average number of shares (Million)

       

– Basic

     5,322       5,318        5,321  

– Diluted

     5,322       5,333        5,338  

Basic (loss)/earnings per ordinary share (US cents)

       

– Continuing operations

     (120.0     65.5        256.5  

– Total

     (120.0     35.9        260.0  

Diluted (loss)/earnings per ordinary share (US cents)

       

– Continuing operations

     (120.0     65.3        255.7  

– Total

     (120.0     35.8        259.1  

Refer to note 26 ‘Discontinued operations’ for basic earnings per share and diluted earnings per share for Discontinued operations.

Earnings on American Depositary Shares represent twice the earnings for BHP Billiton ordinary shares.

Recognition and measurement

Diluted earnings attributable to owners of the BHP Billiton Group are equal to the earnings attributable to owners of the BHP Billiton Group.

The calculation of the number of ordinary shares used in the computation of basic earnings per share is the aggregate of the weighted average number of ordinary shares of BHP Billiton Limited and BHP Billiton Plc outstanding during the period after deduction of the number of shares held by the Billiton Employee Share Ownership Plan Trust and the BHP Billiton Limited Employee Equity Trust.

The conversion of options and share rights would decrease the loss per share for the year ended 30 June 2016 and therefore its impact has been excluded from the diluted earnings per share calculation (2015: 160,116 antidilutive shares; 2014: 183,181 antidilutive shares).

For the purposes of calculating diluted earnings per share, the effect of 15 million of dilutive shares has been taken into account for the year ended 30 June 2015 and 17 million shares for the year ended 30 June 2014. The Group’s only potential dilutive ordinary shares are share awards granted under the employee share ownership plans for which terms and conditions are described in note 23 ‘Employee share ownership plans’.

 

F-32


Working capital

7.    Trade and other receivables

 

     2016      2015  
     US$M      US$M  

Trade receivables

     1,730        2,982  

Loans to equity accounted investments

     897        995  

Other receivables

     1,395        1,843  
  

 

 

    

 

 

 

Total

     4,022        5,820  
  

 

 

    

 

 

 

Comprising:

     

Current

     3,155        4,321  

Non-current

     867        1,499  
  

 

 

    

 

 

 

Recognition and measurement

Trade receivables are recognised initially at fair value and subsequently at amortised cost using the effective interest method, less an allowance for impairment.

The collectability of trade receivables is assessed continuously and at reporting date specific allowances are made for any doubtful receivables based on a review of all outstanding amounts at reporting period-end. Individual receivables are written off when management deems them unrecoverable. The net carrying amount of trade and other receivables approximates their fair values.

Credit risk

Trade receivables generally have terms of less than 30 days. The Group has no material concentration of credit risk with any single counterparty and is not dominantly exposed to any individual industry.

Credit risk can arise from the non-performance by counterparties of their contractual financial obligations towards the Group. To manage credit risk, the Group maintains Group-wide procedures covering the application for credit approvals, granting and renewal of counterparty limits, proactive monitoring of exposures against these limits and requirements triggering secured payment terms. As part of these processes, the credit exposures with all counterparties are regularly monitored and assessed on a timely basis. The credit quality of the Group’s customers is reviewed and assessed for impairment where indicators of such impairment exist. The solvency of each debtor and their ability to pay on the receivable is considered in assessing receivables for impairment.

Receivables are deemed to be past due or impaired in accordance with the Group’s terms and conditions. These terms and conditions are determined on a case-by-case basis with reference to the customer’s credit quality, payment performance and prevailing market conditions. At 30 June 2016, trade receivables are stated net of provisions for doubtful debts of US$ nil (2015: US$6 million). As of 30 June 2016, trade receivables of US$12 million (2015: US$10 million) were past due but not impaired. The majority of these receivables were less than 30 days overdue. As at the reporting date, there are no indications that the debtors will not meet their payment obligations.

 

F-33


8.    Trade and other payables

 

     2016      2015  
     US$M      US$M  

Trade creditors

     3,662        4,857  

Other creditors

     1,740        2,561  
  

 

 

    

 

 

 

Total

     5,402        7,418  
  

 

 

    

 

 

 

Comprising:

     

Current

     5,389        7,389  

Non-current

     13        29  
  

 

 

    

 

 

 

9.    Inventories

 

     2016      2015    

Definitions

     US$M      US$M      

Raw materials and consumables

     1,394        1,683     Spares, consumables and other supplies yet to be utilised in the production process or in the rendering of services.

Work in progress

     2,149        2,297     Commodities currently in the production process that require further processing by the Group to a saleable form.

Finished goods

     632        778     Commodities held-for-sale and not requiring further processing by the Group.
  

 

 

    

 

 

   

Total (a)

     4,175        4,758    
  

 

 

    

 

 

   

Comprising:

       

Current

     3,411        4,292     Inventories classified as non-current are not expected to be utilised or sold within 12 months after the reporting date.

Non-current

     764        466    
  

 

 

    

 

 

   

 

(a)  Inventory write-downs of US$118 million were recognised during the year (2015: US$182 million; 2014: US$95 million). Inventory write-downs of US$118 million made in previous periods were reversed during the year (2015: US$42 million; 2014: US$69 million).

Recognition and measurement

Regardless of the type of inventory and its stage in the production process, inventories are valued at the lower of cost and net realisable value. Cost is determined primarily on the basis of average costs. For processed inventories, cost is derived on an absorption costing basis. Cost comprises costs of purchasing raw materials and costs of production, including attributable mining and manufacturing overheads taking into consideration normal operating capacity.

Minerals inventory quantities are assessed primarily through surveys and assays, while petroleum inventory quantities are derived through flow rate or tank volume measurement and the composition is derived via sample analysis.

 

F-34


Key judgements and estimates

Accounting for inventory involves the use of judgements and estimates, particularly related to the measurement and valuation of inventory on hand within the production process. Certain estimates, including expected metal recoveries and work in progress volumes, are calculated by engineers using available industry, engineering and scientific data. Estimates used are periodically reassessed by the Group taking into account technical analysis and historical performance. Changes in estimates are adjusted for on a prospective basis.

During the period, estimates of recoverable copper in the Escondida sulphide leach pad were increased to reflect higher than expected recovery as a result of operational improvements and enhanced information about pad performance. The impact on after tax profit for FY2016 is US$269 million and is expected to be approximately US$288 million in FY2017.

Resource assets

10.    Property, plant and equipment

 

    Land and
buildings
    Plant and
equipment
    Other
mineral
assets
    Assets under
construction
    Exploration
and
evaluation
    Total  
    US$M     US$M     US$M     US$M     US$M     US$M  

Net book value – 30 June 2016

           

At the beginning of the financial year

    8,762       48,361       21,069       14,502       1,378       94,072  

Additions (a)

    4       (89     750       5,337       344       6,346  

Depreciation for the year

    (574     (6,780     (1,090           4       (8,440

Impairments, net of reversals

    (49     (2,892     (4,432           (4     (7,377

Disposals

    (15     (64     (8     (13     (10     (110

Divestment and demerger of subsidiaries and operations

    (39     (120     (5     (3           (167

Exchange variations taken to reserve

          2                         2  

Transfers and other movements

    916       9,348       (342     (10,262     (11     (351
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At the end of the financial year

    9,005       47,766       15,942       9,561       1,701       83,975  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

– Cost

    12,425       98,688       30,924       9,562       2,612       154,211  

– Accumulated depreciation and impairments

    (3,420     (50,922     (14,982     (1     (911     (70,236
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value – 30 June 2015

           

At the beginning of the financial year

    9,981       57,426       24,710       15,311       1,359       108,787  

Additions (a)

          (563     921       10,788       215       11,361  

Depreciation for the year

    (659     (7,443     (1,607           (1     (9,710

Impairments, net of reversals

    (76     (2,632     (1,328                 (4,036

Disposals

    (10     (80                 (1     (91

Divestment and demerger of subsidiaries and operations

    (1,459     (7,703     (1,564     (1,001     (40     (11,767

Exchange variations taken to reserve

          (8                       (8

Transfers and other movements

    985       9,364       (63     (10,596     (154     (464
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At the end of the financial year

    8,762       48,361       21,069       14,502       1,378       94,072  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

– Cost

    11,689       90,571       30,814       14,502       2,630       150,206  

– Accumulated depreciation and impairments

    (2,927     (42,210     (9,745           (1,252     (56,134
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)  Includes net foreign exchange gains/losses related to the closure and rehabilitation provisions. Refer to note 14 ‘Closure and rehabilitation provisions’.

 

F-35


Recognition and measurement

Property, plant and equipment

Property, plant and equipment is recorded at cost less accumulated depreciation and impairment charges. Cost is the fair value of consideration given to acquire the asset at the time of its acquisition or construction and includes the direct costs of bringing the asset to the location and the condition necessary for operation and the estimated future costs of closure and rehabilitation of the facility.

Equipment leases

Assets held under lease, which result in the Group receiving substantially all of the risk and rewards of ownership are capitalised as property, plant and equipment at the lower of the fair value of the leased assets or the estimated present value of the minimum lease payments. Leased assets are depreciated on the same basis as owned assets or, where shorter, the lease term. The corresponding finance lease obligation is included within interest bearing liabilities. The interest component is charged to the income statement over the lease term to reflect a constant rate of interest over the remaining balance of the obligation.

Operating leases are not capitalised and rental payments are included in the income statement on a straight-line basis over the lease term. Ongoing contracted commitments under finance and operations leases are disclosed within note 31 ‘Commitments’.

Exploration and evaluation

Exploration costs are incurred to discover mineral and petroleum resources. Evaluation costs are incurred to assess the technical feasibility and commercial viability of resources found.

Exploration and evaluation expenditure is charged to the income statement as incurred, except in the following circumstances in which case the expenditure may be capitalised:

In respect of minerals activities:

 

  the exploration and evaluation activity is within an area of interest that was previously acquired as an asset acquisition or in a business combination and measured at fair value on acquisition; or

 

  the existence of a commercially viable mineral deposit has been established.

In respect of petroleum activities:

 

  the exploration and evaluation activity is within an area of interest for which it is expected that the expenditure will be recouped by future exploitation or sale; or

 

  exploration and evaluation activity has not reached a stage that permits a reasonable assessment of the existence of commercially recoverable reserves.

Initial payments for the acquisition of intangible lease assets are capitalised and amortised over the term of the permit.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area. Capitalised costs are only carried forward to the extent that they are expected to be recovered through the successful exploitation of the area of interest or alternatively by its sale. To the extent that capitalised expenditure is no longer expected to be recovered, it is charged to the income statement.

 

F-36


Key judgements and estimates

Exploration and evaluation expenditure results in certain items of expenditure being capitalised for an area of interest where it is considered likely to be recoverable by future exploitation or sale, or where the activities have not reached a stage that permits a reasonable assessment of the existence of reserves. This policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular whether an economically viable extraction operation can be established. Any such estimates and assumptions may change as new information becomes available. If, after having capitalised the expenditure under the policy, a judgement is made that recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to the income statement.

Development expenditure

When proven mineral reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is reclassified as assets under construction within property, plant and equipment (refer to the mineral reserves definition under note 39 ‘Reserve estimates’). All subsequent development expenditure is capitalised and classified as assets under construction, provided commercial viability conditions continue to be satisfied.

The Group may use funds sourced from external parties to finance the acquisition and development of assets and operations. Finance costs are expensed as incurred, except where they relate to the financing of construction or development of qualifying assets. Borrowing costs directly attributable to acquiring or constructing a qualifying asset are capitalised during the development phase. Development expenditure is net of proceeds from the saleable material extracted during the development phase. On completion of development, all assets included in assets under construction are reclassified as either plant and equipment or other mineral assets and depreciation commences.

 

Key judgements and estimates

Development activities commence after project sanctioning by the appropriate level of management. Judgement is applied by management in determining when a project is economically viable. In exercising this judgement, management is required to make certain estimates and assumptions as to future events and circumstances. Estimates and assumptions may change as new information becomes available. If, after having commenced the development activity, a judgement is made that a development asset is impaired, the appropriate amount will be written off to the income statement.

Other mineral assets

Other mineral assets comprise:

 

  capitalised exploration, evaluation and development expenditure for assets in production;

 

  mineral rights and petroleum interests acquired;

 

  capitalised development and production stripping costs.

Overburden removal costs

The process of removing overburden and other waste materials to access mineral deposits is referred to as stripping. Stripping is necessary to obtain access to mineral deposits and occurs throughout the life of an open-pit mine. Development and production stripping costs are classified as other mineral assets in property, plant and equipment.

 

F-37


Stripping costs are accounted for separately for individual components of an ore body. The determination of components is dependent on the mine plan and other factors, including the size, shape and geotechnical aspects of an ore body. The Group accounts for stripping activities as follows:

Development stripping costs

These are initial overburden removal costs incurred to obtain access to mineral deposits that will be commercially produced. These costs are capitalised when it is probable that future economic benefits (access to mineral ores) will flow to the Group and costs can be measured reliably.

Once the production phase begins, capitalised development stripping costs are depreciated using the units of production method based on the proven and probable reserves of the relevant identified component of the ore body to which the initial stripping activity benefits.

Production stripping costs

These are interburden removal costs incurred during the normal course of production activity, which commences after the first saleable minerals have been extracted from the component. Production stripping costs can give rise to two benefits, the accounting for which is outlined below:

 

    

Production stripping activity

Benefits of stripping activity

   Extraction of ore (inventory) in current period.    Improved access to future ore extraction.

Period benefited

   Current period    Future period(s)

Recognition and measurement criteria

   When the benefits of stripping activities are realised in the form of inventory produced; the associated costs are recorded in accordance with the Group’s inventory accounting policy.   

When the benefits of stripping activities are improved access to future ore; production costs are capitalised when all the following criteria are met:

 

–       the production stripping activity improves access to a specific component of the ore body and it is probable that economic benefit arising from the improved access to future ore production will be realised;

 

–       the component of the ore body for which access has been improved can be identified;

 

–       costs associated with that component can be measured reliably.

Allocation of costs

   Production stripping costs are allocated between the inventory produced and the production stripping asset using a life-of-component waste-to-ore (or mineral contained) strip ratio. When the current strip ratio is greater than the estimated life-of-component ratio a portion of the stripping costs is capitalised to the production stripping asset.

 

F-38


    

Production stripping activity

Asset recognised from stripping activity

   Inventory    Other mineral assets within property, plant and equipment.

Depreciation basis

   Not applicable    On a component-by-component basis using the units of production method based on proven and probable reserves.

 

Key judgements and estimates

The identification of components of an ore body, as well as estimation of stripping ratios and mineral reserves by component require critical accounting judgements and estimates to be made by management. Changes to estimates related to life-of-component waste-to-ore (or mineral contained) strip ratios and the expected ore production from identified components are accounted for prospectively and may affect depreciation rates and asset carrying values.

Where assets are dedicated to a mine or petroleum lease, the below useful lives are subject to the lesser of the asset category’s useful life and the life of the mine or petroleum lease, unless those assets are readily transferable to another productive mine or lease.

Depreciation

 

The estimation of useful lives, residual values and depreciation methods require significant management judgement and are reviewed annually. Any changes to useful lives may affect prospective depreciation rates and asset carrying values.

Depreciation of assets, other than land, assets under construction and capitalised exploration and evaluation that are not depreciated, is calculated using either the straight-line (SL) method or units of production (UoP) method, net of residual values, over the estimated useful lives of specific assets. The depreciation method and rates applied to specific assets reflect the pattern in which the asset’s benefits are expected to be used by the Group.

The table below summarises the principal depreciation methods and rates applied to major asset categories by the Group.

 

Category

  

Buildings

  

Plant and
equipment

  

Mineral rights and
petroleum interests

  

Capitalised exploration,
evaluation and
development
expenditure

Typical depreciation methodology

   SL    SL    UoP    UoP

Depreciation rate

   25 to 50 years    3 to 30 years    Based on the rate of depletion of reserves    Based on the rate of depletion of reserves

 

F-39


11.     Intangible assets

 

     2016     2015  
     Goodwill     Other
intangibles
    Total     Goodwill     Other
intangibles
    Total  
     US$M     US$M     US$M     US$M     US$M     US$M  

Net book value

            

At the beginning of the financial year

     3,274       1,018       4,292       4,034       1,405       5,439  

Additions

           78       78             82       82  

Amortisation for the year

           (221     (221           (243     (243

Impairments for the year

     (1     (16     (17     (542     (28     (570

Disposals

           (10     (10           (8     (8

Divestment and demerger of subsidiaries and operations

                       (218     (190     (408

Other

           (3     (3                  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At the end of the financial year

     3,273       846       4,119       3,274       1,018       4,292  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

– Cost

     3,273       1,813       5,086       3,274       2,262       5,536  

– Accumulated amortisation and impairments

           (967     (967           (1,244     (1,244
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recognition and measurement

 

Goodwill

  

Other intangibles

Where the fair value of the consideration paid for a business acquisition exceeds the fair value of the identifiable assets, liabilities and contingent liabilities acquired, the difference is treated as goodwill. Where consideration is less than the fair value of acquired net assets, the difference is recognised immediately in the income statement. Goodwill is not amortised and is measured at cost less any impairment losses.    The Group capitalises amounts paid for the acquisition of identifiable intangible assets, such as software and licences where it is considered that they will contribute to future periods through revenue generation or reductions in cost. These assets, classified as finite life intangible assets, are carried in the balance sheet at the fair value of consideration paid less accumulated amortisation and impairment charges. Intangible assets with finite useful lives are amortised on a straight-line basis over their useful lives. The estimated useful lives are generally no greater than eight years.

 

F-40


12.    Impairment of non-current assets

 

Year ended 30 June 2016

    Year ended 30 June 2015  

Cash

generating

unit

  Segment   Property,
plant and
equipment
    Goodwill
and other
intangibles
    Total     Cash
generating
unit
  Segment   Property,
plant and
equipment
    Goodwill
and other
intangibles
    Total  
        US$M     US$M     US$M             US$M     US$M     US$M  

Fayetteville

  Petroleum     1,913             1,913     Onshore US   Petroleum           500       500  

Haynesville

  Petroleum     2,585             2,585     Hawkville   Petroleum     2,287             2,287  

Black Hawk

  Petroleum     1,861             1,861     Other   Petroleum     435       42       477  

Hawkville

  Petroleum     825             825           2,722       542       3,264  
      7,184             7,184            
          Nickel
West
  Group and
unallocated
    409             409  

Other

  Various     193       17       210     Other   Various     318       28       346  

Total impairment of non-current assets

    7,377       17       7,394    

Total impairment of non-current assets

    3,449       570       4,019  

Reversal of impairment

                    Reversal of impairment     (4           (4

Net impairment of non-current assets

    7,377       17       7,394    

Net impairment of non- current assets

    3,445       570       4,015  

Recognition and measurement

Impairment tests are carried out annually for goodwill. In addition, impairment tests for all assets are performed when there is an indication of impairment. If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the income statement so as to reduce the carrying amount in the balance sheet to its recoverable amount.

Previously impaired assets (excluding goodwill) are reviewed for possible reversal of previous impairment at each reporting date. Impairment reversal cannot exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised for the asset or CGU. There were no material reversals of impairment in the current or prior year.

How recoverable amount is calculated

The recoverable amount is the higher of an asset’s fair value less cost of disposal (FVLCD) and value in use (VIU). For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units (CGUs)).

Valuation methods

Fair value less cost of disposal

FVLCD is an estimate of the amount that a market participant would pay for an asset or CGU, less the cost of disposal. Fair value for mineral and petroleum assets is generally determined using independent market assumptions to calculate the present value of the estimated future cash flows expected to arise from the continued use of the asset, including the anticipated cash flow effects of any capital expenditure to enhance production or reduce cost, and its eventual disposal where a market participant may take a consistent view. Cash flows are discounted using an appropriate post-tax market discount rate to arrive at a net present value of the asset which is compared against the asset’s carrying value.

 

F-41


Value in use

VIU is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal. VIU is determined by applying assumptions specific to the Group’s continued use and cannot take into account future development. These assumptions are different to those used in calculating fair value and consequently the VIU calculation is likely to give a different result (usually lower) to a fair value calculation.

Impairment of non-current assets (excluding goodwill)

 

Petroleum

    
What has been recognised?    At 31 December 2015, the Group recognised an impairment charge of US$7,184 million (US$4,884 million after tax benefit) against the carrying value of individual Onshore US CGUs. There has been no further impairment relating to Onshore US CGUs in the six months to 30 June 2016.
What were the drivers of impairment?    As a result of significant volatility and weaker prices experienced in the oil and gas industry, management adjusted its medium-term and long-term price assumptions and discount rates, which had a significant flow through impact on asset valuations.
How were the valuations calculated?    Using these updated assumptions, valuations of the relevant Onshore US CGUs were calculated using FVLCD methodology, applying discounted cash flow techniques. The recoverable amount in each instance is equal to its estimated FVLCD. Future cash flow information is based upon the Group’s latest budgets and project economic plans incorporating Level 3 fair value inputs as defined in note 21 ‘Financial risk management’.
What were the significant assumptions and estimates used in the valuations?    The valuations are most sensitive to changes in crude oil and natural gas prices, estimated future production volumes and discount rates. Key judgements and estimates used in determining FVLCD are disclosed below.

Impairment test for goodwill

The carrying amount of goodwill has been allocated to the CGUs, or groups of CGUs, as follows:

 

Cash generating units

   2016      2015  
     US$M      US$M  

Onshore US

     3,026        3,026  

Other

     247        248  
  

 

 

    

 

 

 
     3,273        3,274  
  

 

 

    

 

 

 

For the purpose of impairment testing, goodwill has been allocated to CGUs or groups of CGUs, that are expected to benefit from the synergies of previous business combinations, which represent the level at which management will monitor and manage goodwill. Onshore US goodwill is the most significant goodwill balance and has been tested for impairment after an assessment of the individual CGUs that it comprises.

 

F-42


Onshore US goodwill

    
Carrying value    US$3,026 million (2015: $3,026 million).
Impairment test conclusion as at 30 June 2016    No impairment charge is required as at 30 June 2016 (30 June 2015: $500 million). The recoverable amount of Onshore US CGUs was determined to be US$14,967 million (30 June 2015: US$19,793 million).
How did the goodwill arise?    Goodwill arose on the Petrohawk acquisition in August 2011 and is attributable to synergies associated with the Group’s US unconventional petroleum assets (Onshore US). This comprises the Permian, Haynesville, Fayetteville, Black Hawk and Hawkville group of CGUs, which includes the Group’s natural gas and liquid reserves and resources, production wells and associated infrastructure, including gathering systems and processing facilities in Texas and Louisiana (US).

Segment

   Onshore US is part of the Petroleum reportable segment.
How were the valuations calculated?    FVLCD methodology using discounted cash flow techniques has been applied in determining the recoverable value of the Onshore US business.
Level of fair value hierarchy    Calculations are based primarily on Level 3 inputs as defined in note 21 ‘Financial risk management’.
Significant assumptions and sensitivities   

The calculation of FVLCD for Onshore US is most sensitive to changes in crude oil and natural gas prices, production volumes and discount rates. Key accounting judgements and estimates used in forming the valuations are disclosed below. The assumptions used are consistent with those underpinning the property, plant and equipment impairment calculations for Onshore US CGUs.

 

Reasonably possible changes in circumstances may affect significant assumptions and the estimated fair value. Isolated changes in these significant assumptions could result in the estimated recoverable amount being equal to the carrying amount of Onshore US, including goodwill. These reasonably possible changes include:

 

•       A production volume decrease of 13.3 per cent from estimates contained in management’s long-term plans;

 

•       A decrease in crude oil prices of 19.2 per cent from prices assumed in the valuations;

 

•       A decrease in natural gas prices of 37.9 per cent from prices assumed in the valuations.

 

Crude oil and natural gas price assumptions used in FVLCD impairment testing are within or lower than the range of prices published by market commentators, as set out within the following key judgements and estimates section.

 

Typically changes in any one of the aforementioned assumptions (including operating performance) would be accompanied by a change in another assumption which may have an offsetting impact. Action is usually taken to respond to adverse changes in assumptions to mitigate the impact of any such change.

Other goodwill

Goodwill held by other CGUs is US$247 million (2015: US$248 million). This represents less than one per cent of net assets at 30 June 2016 (2015: less than one per cent). This goodwill has been allocated across a number of CGUs in different reportable segments. There was no significant impairment of other goodwill in the year to 30 June 2016 (2015: US$ nil).

 

F-43


Key judgements and estimates

Recoverable amount testing

In determining the recoverable amount of assets, in the absence of quoted market prices, estimates are made regarding the present value of future cash flows. These estimates require significant management judgement and are subject to risk and uncertainty that may be beyond the control of the Group; hence, there is a possibility that changes in circumstances will materially alter projections, which may impact the recoverable amount of assets at each reporting date.

The most significant estimates impacting asset recoverable amount valuations for Onshore US assets, including goodwill are:

Crude oil and natural gas prices

Crude oil and natural gas prices used in valuations were either lower than or within the following range of prices published by market commentators:

 

     2016      2015  

West Texas Intermediate crude oil price (US$/bbl)

     49.00 – 81.00        57.00 – 86.00  

Henry Hub natural gas price (US$/MMBtu)

     2.74 – 5.55        3.54 – 5.80  

Oil and gas prices were derived from consensus and long-term views of global supply and demand, built upon past experience of the industry and consistent with external sources. Prices are adjusted based upon premiums or discounts applied to global price markers based on the nature and quality produced at a field, or to take into account contracted oil and gas prices.

Future production volumes

Estimated production volumes were based on detailed data for the fields and took into account development plans for the fields established by management as part of the long-term planning process. Production volumes are dependent on variables, such as the recoverable quantities of hydrocarbons, the production profile of the hydrocarbons, the cost of the development of the infrastructure necessary to recover the hydrocarbons, the production costs and the contractual duration of the production leases. As each producing field has specific reservoir characteristics and economic circumstances, the cash flows of the fields were computed using appropriate individual economic models and key assumptions established by management. The production profiles used were consistent with management’s long-term plans and the resource volumes approved as part of the Group’s process for the estimation of proved reserves and total resources.

Impact of oil and gas Reserves and future anticipated production levels on testing for impairment

Production volumes and prices used in estimating FVLCD valuations may not be consistent with those disclosed as proved reserves under SEC regulations in section 6.3.1 ‘Petroleum reserves’. FVLCD requires the use of assumptions and estimates that a typical market participant would assume, which include having regard to future forecast oil and gas prices and anticipated field production estimates. This contrasts with SEC requirements to use unweighted 12-month average historical prices for reserve definitions.

Under SEC requirements, certain previously reported proved reserves may temporarily not meet the definition of proved reserves due to the decrease in price experienced in the last 12 months. This does not preclude these reserves from being reinstated as proved reserves in future periods when prices recover.

Short-term changes in SEC reported oil and gas reserves do not affect the Group’s perspective on underlying project valuations due to the long lives of the assets and future forecast prices.

 

F-44


Discount rates

A real post-tax discount rate of 6.5 per cent (2015: 5.5 per cent) was applied to post-tax cash flows. The discount rate is derived using the weighted average cost of capital methodology and has increased from the prior year due to volatility in oil and gas markets.

13.    Deferred tax balances

The movement for the year in the Group’s net deferred tax position is as follows:

 

     2016     2015     2014  
     US$M     US$M     US$M  

Net deferred tax asset/(liability)

      

At the beginning of the financial year

     (1,681     (670     (243

Income tax credit/(charge) recorded in the income statement

     3,508       (864     (426

Income tax (charge)/credit recorded directly in equity

     (25     9       (1

Exchange variation and other movements (a)

     21       (156      
  

 

 

   

 

 

   

 

 

 

At the end of the financial year

     1,823       (1,681     (670
  

 

 

   

 

 

   

 

 

 

 

(a)  Includes deferred tax assets divested as part of the demerger of South32 for the year ended 30 June 2015.

For recognition and measurement refer to note 5 ‘Income tax expense’.

The composition of the Group’s net deferred tax assets and liabilities recognised in the balance sheet and the deferred tax expense charged/(credited) to the income statement is as follows:

 

     Deferred tax
assets
    Deferred tax
liabilities
    (Credited)/charged to the
income statement
 
     2016     2015     2016     2015     2016     2015     2014  
     US$M     US$M     US$M     US$M     US$M     US$M     US$M  

Type of temporary difference

              

Depreciation

     (3,223     (1,101     1,259       5,689       (2,282     204       495  

Exploration expenditure

     656       563             (91     (3     117       (4

Employee benefits

     342       279       (6     (120     56       58       (32

Closure and rehabilitation

     1,711       1,383       (177     (584     36       41       (353

Resource rent tax

     661       679       1,905       1,931       (8     925       (506

Other provisions

     145       143       (1     (12     8       103       (411

Deferred income

           (51     (11     (13     (49     17       12  

Deferred charges

     (470     (419     372       362       62       66       226  

Investments, including foreign tax credits

     1,327       838       844       639       (284     (58     298  

Foreign exchange gains and losses

     (77     (383     156       160       (310     210       (158

Tax losses

     5,006       1,069             (3,129     (809     (945     605  

Other

     69       (139     (17     (290     75       126       254  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6,147       2,861       4,324       4,542       (3,508     864       426  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Group recognises the benefit of tax losses amounting to US$5,006 million (2015: US$4,198 million) only to the extent of anticipated future taxable income or gains in relevant jurisdictions. The amounts recognised in the Financial Statements in respect of each matter are derived from the Group’s best judgements and estimates as described in note 5 ‘Income tax expense’.

 

F-45


The composition of the Group’s unrecognised deferred tax assets and liabilities is as follows:

 

     2016      2015  
     US$M      US$M  

Unrecognised deferred tax assets

     

Tax losses and tax credits (a)

     2,549        2,006  

Investments in subsidiaries (b)

     1,185        1,130  

Deductible temporary differences relating to PRRT (c)

     2,048        2,014  

Mineral rights (d)

     2,279        1,958  

Other deductible temporary differences (e)

     460        373  
  

 

 

    

 

 

 

Total unrecognised deferred tax assets

     8,521        7,481  
  

 

 

    

 

 

 

Unrecognised deferred tax liabilities

     

Investments in subsidiaries (b)

     2,615        2,553  

Taxable temporary differences relating to unrecognised deferred tax asset for PRRT (c)

     614        604  
  

 

 

    

 

 

 

Total unrecognised deferred tax liabilities

     3,229        3,157  
  

 

 

    

 

 

 

 

(a)  Tax losses and tax credits

At 30 June 2016, the Group had income and capital tax losses with a tax benefit of US$1,781 million (2015: US$1,501 million) and tax credits of US$768 million (2015: US$505 million), which are not recognised as deferred tax assets.

The gross amount of tax losses carried forward that have not been tax effected expire as follows:

 

Year of expiry

   Total  
     US$M  

Income tax losses

  

Not later than one year

     223  

Later than one year and not later than two years

     1,117  

Later than two years and not later than five years

     1,708  

Later than five years and not later than 10 years

     820  

Later than 10 years and not later than 20 years

     2,043  

Unlimited

     528  
  

 

 

 
     6,439  
  

 

 

 

Capital tax losses

  

Later than two years and not later than five years

     238  

Unlimited

     3,488  
  

 

 

 

Gross amount of tax losses not recognised

     10,165  
  

 

 

 

Tax effect of total losses not recognised

     1,781  
  

 

 

 

Of the US$768 million of tax credits, US$471 million expires later than five years and not later than 10 years, US$202 million expires later than 10 years and not later than 20 years. The remainder of the tax credits do not have an expiration date.

 

F-46


(b)  Temporary differences associated with investments in subsidiaries

The Group had deferred tax assets of US$1,185 million at 30 June 2016 (2015: US$1,130 million) and deferred tax liabilities of US$2,615 million (2015: US$2,553 million) associated with undistributed earnings of subsidiaries that have not been recognised because the Group is able to control the timing of the reversal of the temporary differences and it is not probable that these differences will reverse in the foreseeable future.

 

(c)  Temporary differences relating to PRRT

The Group had US$2,048 million of unrecognised deferred tax assets relating to Australian Petroleum Resource Rent Tax (PRRT) at 30 June 2016 (2015: US$2,014 million relating to Australian PRRT), with a corresponding unrecognised deferred tax liability for income tax purposes of US$614 million (2015: US$604 million). Recognition of a deferred tax asset for PRRT depends on benefits expected to be obtained from the deduction against PRRT liabilities.

 

(d)  Mineral rights

The Group had deductible temporary differences relating to mineral rights for which deferred tax assets of US$2,279 million at 30 June 2016 (2015: US$1,958 million) had not been recognised because it is not probable that future capital gains will be available, against which the Group can utilise the benefits. The deductible temporary differences do not expire under current tax legislation.

 

(e)  Other deductible temporary differences

The Group had deductible temporary differences for which deferred tax assets of US$460 million at 30 June 2016 (2015: US$373 million) had not been recognised because it is not probable that future taxable profits will be available against which the Group can utilise the benefits. The deductible temporary differences do not expire under current tax legislation.

 

F-47


14.    Closure and rehabilitation provisions

 

     2016     2015  
     US$M     US$M  

At the beginning of the financial year

     6,701       9,295  

Capitalised amounts for operating sites:

    

Change in estimate

     (58     276  

Exchange translation

     (112     (1,009

Adjustments to closed sites charged/(credited) to the income statement:

    

Increases to existing and new provisions

     18       74  

Exchange translation

     (8     (104

Released during the year

     (81     (93

Other adjustments to the provision:

    

Amortisation of discounting impacting net finance costs

     305       442  

Expenditure on closure and rehabilitation activities

     (111     (180

Exchange variations impacting foreign currency translation reserve

     (1     (7

Divestment and demerger of subsidiaries and operations

     (138     (1,993

Transfers and other movements

     (13      
  

 

 

   

 

 

 

At the end of the financial year

     6,502       6,701  
  

 

 

   

 

 

 

Comprising:

    

Current

     171       193  

Non-current

     6,331       6,508  
  

 

 

   

 

 

 

Operating sites

     5,241       5,655  

Closed sites

     1,261       1,046  
  

 

 

   

 

 

 

BHP Billiton is required to rehabilitate sites and associated facilities at the end of, or in some cases, during the course of production, to a condition acceptable to the relevant authorities, specified in license requirements and the Group’s environmental performance requirements as set out within Our BHP Billiton Charter.

The key components of closure and rehabilitation activities are:

 

  the removal of all unwanted infrastructure associated with an operation;

 

  the return of disturbed areas to a safe, stable, productive and self-sustaining condition, consistent with the agreed end land use.

Recognition and measurement

Provisions for closure and rehabilitation are recognised by the Group when:

 

  it has a present legal or constructive obligation as a result of past events;

 

  it is more likely than not that an outflow of resources will be required to settle the obligation;

 

  the amount can be reliably estimated.

 

F-48


Initial recognition

  

Subsequent remeasurement

Closure and rehabilitation provisions are initially recognised when an environmental disturbance first occurs. The individual site provisions are an estimate of the expected value of future cash flows required to rehabilitate the relevant site using current restoration standards and techniques and taking into account risks and uncertainties. Individual site provisions are discounted to their present value using country specific discount rates aligned to the estimated timing of cash outflows.

 

When provisions for closure and rehabilitation are initially recognised, the corresponding cost is capitalised as an asset, representing part of the cost of acquiring the future economic benefits of the operation.

  

The closure and rehabilitation asset, recognised within property, plant and equipment, is depreciated over the life of the operations. The value of the provision is progressively increased over time as the effect of discounting unwinds, resulting in an expense recognised in net finance costs.

 

The closure and rehabilitation liability is reviewed at each reporting date to assess if the estimate continues to reflect the best estimate of the obligation. If necessary the provision is remeasured to account for factors, including:

 

–       revisions to estimated reserves, resources and lives of operations;

 

–       developments in technology;

 

–       regulatory requirements and environmental management strategies;

 

–       changes in the estimated extent and costs of anticipated activities, including the effects of inflation and movements in foreign exchange rates;

 

–       movements in interest rates affecting the discount rate applied.

 

Changes to the closure and rehabilitation estimate are added to, or deducted from, the related asset and amortised on a prospective basis accordingly over the remaining life of the operation, generally applying the units of production method.

 

Costs arising from unforeseen circumstances, such as the contamination caused by unplanned discharges, are recognised as an expense and liability when the event gives rise to an obligation that is probable and capable of reliable estimation.

Closed sites

Where future economic benefits are no longer expected to be derived through operation, changes to the associated closure and remediation costs are charged to the income statement in the period identified. This amounted to US$18 million in the year ended 30 June 2016 (2015: US$74 million).

 

F-49


Key judgements and estimates

The recognition and measurement of closure and rehabilitation provisions requires the use of significant judgements and estimates, including, but not limited to:

 

    the extent (due to legal or constructive obligations) of potential activities required for the removal of infrastructure and rehabilitation activities;

 

    costs associated with future rehabilitation activities;

 

    applicable inflation and discount rates;

 

    the timing of cash flows and ultimate closure of operations.

Estimates can also be impacted by the emergence of new restoration techniques and experience at other operations. These uncertainties may result in future actual expenditure differing from the amounts currently provided for in the balance sheet.

Capital structure

15.    Share capital

 

    BHP Billiton Limited     BHP Billiton Plc  
    2016
shares
    2015
shares
    2014
Shares
    2016
shares
    2015
shares
    2014
shares
 

Share capital issued

           

Opening number of shares

    3,211,691,105       3,211,691,105       3,211,691,105       2,112,071,796       2,136,185,454       2,136,185,454  

Purchase of shares by ESOP Trusts

    (6,538,404     (6,798,803     (8,621,160     (17,000     (3,623,582     (2,563,735

Employee share awards exercised following vesting

    6,846,091       7,443,935       7,379,051       966,473       2,945,980       2,431,251  

Movement in treasury shares under Employee Share Plans

    (307,687     (645,132     1,242,109       (949,473     677,602       132,484  

Treasury shares cancelled (a)

                            (24,113,658      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Closing number of shares (b)

    3,211,691,105       3,211,691,105       3,211,691,105       2,112,071,796       2,112,071,796       2,136,185,454  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprising:

           

Shares held by the public

    3,211,159,695       3,210,852,008       3,210,206,876       2,111,283,256       2,110,333,783       2,110,945,784  

Treasury shares

    531,410       839,097       1,484,229       788,540       1,738,013       25,239,670  

Other share classes

           

Special Voting share of no par value

    1       1       1                    

Special Voting share of US$0.50 par value

                      1       1       1  

5.5% Preference shares of £1 each

                      50,000       50,000       50,000  

DLC Dividend share

    1                                

 

(a)  On 28 August 2014, BHP Billiton Plc cancelled 24,113,658 ordinary shares of US$0.50 each held as treasury shares.

 

(b) During the period 1 July 2016 to 10 September 2016, no fully paid ordinary shares in BHP Billiton were issued on the exercise of Group Incentive Scheme awards.

 

F-50


Recognition and measurement

Share capital of BHP Billiton Limited and BHP Billiton Plc is composed of the following classes of shares:

 

Ordinary shares fully paid

  

Special Voting shares

  

Preference shares

BHP Billiton Limited and BHP Billiton Plc ordinary shares fully paid of US$0.50 par value represent 99.99 per cent of the total number of shares. Any profit remaining after payment of preferred distributions is available for distribution to the holders of BHP Billiton Limited and BHP Billiton Plc ordinary shares in equal amounts per share.    Each of BHP Billiton Limited and BHP Billiton Plc issued one Special Voting share to facilitate joint voting by shareholders of BHP Billiton Limited and BHP Billiton Plc on Joint Electorate Actions. There has been no movement in these shares.    Preference shares have the right to repayment of the amount paid up on the nominal value and any unpaid dividends in priority to the holders of any other class of shares in BHP Billiton Plc on a return of capital or winding up. The holders of preference shares have limited voting rights if payment of the preference dividends are six months or more in arrears or a resolution is passed changing the rights of the preference shareholders. There has been no movement in these shares, all of which are held by JP Morgan Limited.

 

Equalisation share

  

DLC Dividend share

  

Treasury shares

An Equalisation share (US$0.50 par value) has been authorised to be issued to enable a distribution to be made by BHP Billiton Plc Group to the BHP Billiton Limited Group should this be required under the terms of the DLC merger. The Directors have the ability to issue the Equalisation share if required under those terms. The Constitution of BHP Billiton Limited allows the Directors of that company to issue a similar Equalisation share. No shares have been issued.    The DLC Dividend share supports the BHP Billiton Dual Listed Company (DLC) equalisation principles in place since the merger in 2001, including the requirement that ordinary shareholders of BHP Billiton Plc and BHP Billiton Limited are paid equal cash dividends per share. This share enables efficient and flexible capital management across the DLC and was issued on 23 February 2016 at par value of US$10. On 24 March 2016, BHP Billiton Limited paid a dividend of US$1,990 million under the DLC dividend share arrangements. This dividend is eliminated on consolidation.    Treasury shares are shares of parent entities and are held by the ESOP Trusts for the purpose of issuing shares to employees under the Group’s Employee Share Plans. Treasury shares are recognised at cost and deducted from equity, net of any income tax effects. When the treasury shares are subsequently sold or reissued any consideration received, net of any directly attributable costs and income tax effects, is recognised as an increase in equity. Any difference between the carrying amount and the consideration, if reissued, is recognised in retained earnings.

 

F-51


16.    Other equity

 

     2016      2015      2014     

Recognition and measurement

     US$M      US$M      US$M       

Share premium account

     518        518        518      The share premium account represents the premium paid on the issue of BHP Billiton Plc shares recognised in accordance with the UK Companies Act 2006.

Foreign currency translation reserve

     41        52        54      The foreign currency translation reserve represents exchange differences arising from the translation of non-US dollar functional currency operations within the Group into US dollars.

Employee share awards reserve

     293        372        599     

The employee share awards reserve represents the accrued employee entitlements to share awards that have been charged to the income statement and have not yet been exercised.

 

Once exercised, the difference between the accumulated fair value of the awards and their historical on-market purchase price is recognised in retained earnings.

Hedging reserve

     210        141        129      The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in the income statement when the hedged transaction impacts the income statement, or is recognised as an adjustment to the cost of non-financial hedged items. The hedging reserve records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge relationship.

Financial assets reserve

     11        9        115