UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

OR

FOR THE FISCAL YEAR ENDED 30 JUNE 2018.2019.

OR

Date of event requiring this shell company report                     

For the transition period from                      to                     

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

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None

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

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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.

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

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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.

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.  ☐

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BHP

Our Charter

We are BHP,

a leading global resources company.

All references to websites in the Annual Report are intended to be inactive textual reference for information only and information contained in or accessible through any such website does not form a part of this Annual Report.

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BHP BillitonGroup Limited. ABN 49 004 028 077. Registered in Australia. Registered office: 171 Collins Street, Melbourne, Victoria 3000, Australia. BHP BillitonGroup Plc. Registration number 3196209. Registered in England and Wales. Registered office: Nova South, 160 Victoria Street London SW1E 5LB United Kingdom. Each of BHP BillitonGroup Limited and BHP BillitonGroup Plc is a member of the Group, which has its headquarters in Australia. BHP is a Dual Listed Company structure comprising BHP BillitonGroup Limited and BHP BillitonGroup Plc. The two entities continue to exist as separate companies but operate as a combined group known as BHP.

The headquarters of BHP BillitonGroup Limited and the global headquarters of the combined Group are located in Melbourne, Australia. The headquarters of BHP BillitonGroup Plc are located in London, United Kingdom. Both companies have identical Boards of Directors and are run by a unified management team. Throughout this publication, the Boards are referred to collectively as the Board. Shareholders in each company have equivalent economic and voting rights in the Group as a whole.

In this Annual Report, the terms ‘BHP’, ‘Group’the ‘Company’, ‘BHP Group’the ‘Group’, ‘our business’, ‘Company’, ‘organisation’, ‘we’, ‘us’, ‘our’ and ‘ourselves’ refer to BHP BillitonGroup Limited, BHP BillitonGroup Plc and, except where the context otherwise requires, their respective subsidiaries as defined in note 27 ‘Subsidiaries’13 ‘Related undertaking of the Group’ in section 5.15.2 of this Annual Report, unless stated otherwise.Report. Those terms do not includenon-operated assets.

This Annual Report covers BHP’s assets (including those under exploration, projects in development or execution phases, sites and closed operations) that have been wholly owned and/or operated by BHP and assets that have been owned as a joint venture¹⁽¹⁾ operated by BHP (referred to in this Report as ‘assets’, ‘operated assets’ or ‘operations’) during the period from 1 July 20172018 to 30 June 2018.2019. Our Marketing and Supply business and our functions are also included.

BHP also holds interests in assets that are owned as a joint venture but not operated by BHP (referred to in this Annual Report as‘non-operated joint ventures’ or‘non-operated assets’). Notwithstanding that this Annual Report may include production, financial and other information fromnon-operated assets,non-operated assets are not included in the BHP Group and, as a result, statements regarding our operations, assets and values apply only to our operated assets unless stated otherwise.

All references to websites in this Annual Report are intended to be inactive textual references for information only and any information contained in or accessible through any such website does not form a part of this Annual Report.

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Contents

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Forward looking statements

This Annual Report contains forward looking statements, including statements regarding trends in commodity prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies and objectives of management; closure or divestment of certain assets, operations or facilities (including associated costs); anticipated production or construction commencement dates; capital costs and scheduling; operating costs; anticipated productive lives of projects, mines and facilities; provisions and contingent liabilities; and tax and regulatory developments.

Forward looking statements may be identified by the use of terminology including, but not limited to, ‘intend’, ‘aim’, ‘project’, ‘anticipate’, ‘estimate’, ‘plan’, ‘believe’, ‘expect’, ‘may’, ‘should’, ‘will’, ‘continue’ or similar words. These statements discuss future expectations concerning the results of assets or financial conditions, or provide other forward looking information.

These forward looking statements are not guarantees or predictions of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from those expressed in the statements contained in this Annual Report. Readers are cautioned not to put undue reliance on forward looking statements.

For example, our future revenues from our assets, projects or mines described in this Annual Report will be based, in part, on the market price of the minerals, metals or petroleum products produced, which may vary significantly from current levels. These variations, if materially adverse, may affect the timing or the feasibility of the development of a particular project, the expansion of certain facilities or mines, or the continuation of existing assets.

Other factors that may affect the actual construction or production commencement dates, costs or production output and anticipated lives of assets, mines or facilities includeinclude: our ability to profitably produce and transport the minerals, petroleum and/or metals extracted to applicable markets; the impact of foreign currency exchange rates on the market prices of the minerals, petroleum or metals we produce; activities of government authorities in the countries where we are exploring or developing projects, facilities or mines, including increases in taxes, changes in environmental and other regulations and political uncertainty; labour unrest; and other factors identified in the risk factors set out in section 1.6.4 of this Annual Report.1.6.4.

Except as required by applicable regulations or by law, BHP does not undertake to publicly update or review any forward looking statements, whether as a result of new information or future events.

Past performance cannot be relied on as a guide to future performance.

Agreements for sale of Onshore US

On 27 July28 September 2018, BHP announced it had entered into agreements forcompleted the sale of its entire100 per cent of the issued share capital of BHP Billiton Petroleum (Arkansas) Inc. and 100 per cent of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which held the Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets, for a combined basegross cash consideration of US$10.8 billion, payable in cash. BP America Production Company, a wholly owned subsidiary0.3 billion.

On 31 October 2018, BHP completed the sale of BP Plc, has agreed to acquire 100%100 per cent of the issued share capital of Petrohawk Energy Corporation, the BHP subsidiary which holdsheld the Eagle Ford (being Black Hawk and Hawkville), Haynesville and Permian assets, for a gross cash consideration of US$10.510.3 billion (less(net of preliminary customary completion adjustments)adjustments of US$0.2 billion). MMGJ Hugoton III, LLC, a company owned by Merit Energy Company, has agreed

While the effective date at which the right to acquire 100% of the issued share capital of BHP Billiton Petroleum (Arkansas) Inc. and 100% of the membership interests in BHP Billiton Petroleum (Fayetteville) LLC, which hold the Fayetteville assets, for a total consideration of US$0.3 billion (less customary completion adjustments). Both sales are subjecteconomic profits transferred to the satisfactionpurchasers was 1 July 2018, the Group continued to control the Onshore US assets until the completion dates of customary regulatory approvals and conditions precedent.their respective transactions. In addition, the Group provided transitional services to the buyer, which ceased in July 2019.

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Form20-F Cross Reference Table

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1    Strategic Report

About this Strategic Report

This Strategic Report in section 1 provides insight into BHP’s strategy, operating and business model, and objectives. It describes the principal risks BHP faces and how these risks might affect our future prospects. It also gives our perspective on our recent operational and financial performance.

This disclosure is also intended to assist shareholders and other stakeholders to understand and interpret the Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS) included in this Annual Report. The basis of preparation of the Consolidated Financial Statements is set out in section 5.1. We also use alternative performance measures to explain our underlying performance; however, these measures should not be considered as an indication of, or as a substitute for, statutory measures as an indicator of actual operating performance, position or as a substitute for cash flow as a measure of liquidity. To obtain full details of the financial and operational performance of BHP, this Strategic Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes. Underlying EBITDA is the key measure that management uses internally to assess the performance of the Group’s segments and make decisions on the allocation of resources. Unless otherwise stated, data in section 1 is presented on a Continuing operations and Discontinued operations basis.

This Strategic Report in section 1 meets the requirements of the UK Companies Act 2006 and the Operating and Financial Review required by the Australian Corporations Act 2001.

References to sections of the Annual Report beyond section 1 are references to other sections in this Annual Report 2018.2019. Shareholders may obtain a hard copy of the Annual Report free of charge by contacting our Share Registrars, whose details are set out in our Corporate Directorydirectory on the inside back cover of this Annual Report.

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1.1    Chairman’s Review

Dear Shareholder,

I am pleased to provide thisour Annual Report of your Company’s performance in FY2018.for FY2019.

ThisDuring the year, we have further simplified and strengthened BHP, enhanced our Capital Allocation Framework, sharpened ourrelentless focus on strengthening our portfolio, capital discipline, culture and productivity and delivered a solid set of financial results. This hasHigher prices and record production from a number of operations contributed to strong operating cash flows and enabled usBHP to announce a record final dividend of 6378 US cents per share.

We have also investedcompleted the sale of our Onshore US oil and gas business in October 2018. Net proceeds of US$10.4 billion were returned to shareholders through a combination of anoff-marketbuy-back in December 2018, and a special dividend in January 2019. These returns, when added to dividends announced in respect of FY2019, delivered record annual cash returns to shareholders.

We continued to invest in our future through the future. Earlier this year, your Board approved US$2.9 billion in capital expenditure for the South Flank iron ore project in Western Australia, following a thorough evaluation againstdisciplined and transparent application of our Capital Allocation Framework. South Flank offers attractive returns for shareholdersBHP currently has six major projects under development in petroleum, copper, iron ore and will enhance the average quality gradepotash. All of BHP’s Western Australia Iron Ore production.them are on schedule and budget.

To further strengthen our portfolio,While we undertook a robust and competitive sales process for our Onshore US assetsmade strong progress in FY2018. We anticipate completing the sale of these assets by the end of October, for US$10.8 billion. We understand that cash returns are important to shareholders, andFY2019, we expect to return the net proceeds from these transactions to shareholders.

Throughout this first year as Chairman of BHP, I have visited a number of our assets around the world. Wherever I have travelled, I have been struck by the commitment of our people toOur Charter values and their dedication to this great company.

Our people are the backbone of BHP and their safety is of paramount importance. So it is with deep sadness that we report the deaths of two of our colleagues at work in FY2018. We achieve nothing if it is not done safelysafely. Tragically, in December last year, our colleague Allan Houston died at BMA’s Saraji Mine in Queensland. I offer my condolences to Allan’s family, friends and colleagues. We have shared the findings of the fatality investigation across the organisation and we will continue our work to improve safety tools and behaviours.

The collapse earlier this year of the Brumadinho tailings dam, owned by Brazilian company Vale, was a tragic event for the industry. Unfortunately, we know too well the toll these events take on communities. We have responded to a Church of England Pensions Board request for information on our own tailings facilities – a request sent to around 700 mining companies. We held investor briefings in Sydney and London to talk openly about how we manage our tailings storage facilities. We are working closely with industry and other stakeholders to achieve more consistent disclosure. We will also participate in setting new international and independent tailings management standards to improve transparency and accountability across the wake of these tragedies, we have redoubled efforts to protect the health and safety of everyone who works at BHP.industry.

1.2    Chief Executive Officer’s Report

Dear Shareholder,

BHP has been on a deliberate pathBHP’s commitment to maximise cash flow, maintainsimplification, capital discipline and increaseculture laid the groundwork for a solid performance in FY2019. From these strong foundations, we are confident in the long-term outlook, with significant opportunities ahead to further transform our business and deliver value and returns tofor our shareholders. In FY2018, solid operating

While our performance combinedis a key indicator of success, how we operate is equally critical.

This year, we changedOur Charter to revise our company purpose. Our purpose is: to bring people and resources together to build a better world.We also added social value as one of our five company priorities. These changes recognise that we work with high commodity prices, saw us achieve a strong setrange of results.stakeholders to make a positive contribution to the world. We know we must build trust and forge mutually beneficial partnerships for the long term, because the value we create together is central to shareholder value.

TheAs always at BHP, the health, safety health and wellbeing of our people isremains our number onehighest priority. Tragically, this year two of

In December 2018, our colleaguescolleague Allan Houston died at work – Daniel Springer at Goonyella RiversideBMA’s Saraji Mine in August 2017Queensland. He remains in our thoughts as do his colleagues, family and friends. After a colleague at our Permian Basin operations last November. It is vitallengthy and thorough investigation, we learn as much ascould not determine the direct cause of the incident but the investigation identified several areas for improvement, which we can from these tragedies. This year, leadersshared across BHP held safety engagements with all employees and contractors. We will build on these to share the lessons with as many people as possible.organisation.

We also had an increaseThere was a slight rise in our total recordable injury frequency performance to 4.44.7 per million hours worked. While the increase was modest, I am encouraged that our safety initiatives have helped reduce, by eight per cent,However, we reduced the number of events with the potential to cause a fatality. Itfatality by 7 per cent, which is an important leadinga critical indicator of our future safety performance.performance across our business. This result is positive, but there is more we can and will do.

Our commitmentFY2019 financial performance from continuing operations was strong. Higher prices and solid underlying performance contributed to health and safety is an important partEBITDA ofOur Chartervalue US$23 billion at a margin of Sustainability. So too is our commitment to responsible environmental stewardship.

1.3    BHP at a glance: FY2018FY2019 performance summary

Not required for US reporting. Refer to sections 1.111.12 and 1.12.1.13.

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1.3    BHP at a glance: What we do

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1.4    About BHP

1.4.1    Our strategy

OurAt BHP, our strategy is to ownhave the best capabilities, best commodities and operate large, long-life,low-cost, expandable, upstreambest assets diversified by commodity, geography and market.

Consistent with this strategy, our plan to create long-term value is focused on six key areas:and high returns.

Cost efficiencies: Focused on further gains

Since 2012, our annualised productivity gains exceed US$12 billion. The combination of our simplified portfolio, streamlined systems, large scale

Driven by a commitment to transformation, capital discipline and connected workforce ensures we are well positioned to deliver approximately US$1 billion in additional productivity gains by the end of FY2019, with strong momentum carried into FY2020.

Technology: Improves safety, costs and unlocks resource

We will continue to integrate and automate oursocial value chain to unlock resource and drive a step change in safety, volume and cost. We have accelerated high-value initiatives across mine autonomy, decision automation and precision mining. We have proving grounds tode-risk and trial technology solutions in real conditions.

Our diverse portfolio allows us to adapt technology developed for one commodity to other areas of the business. For example, our integrated remote operations centres were first deployed in Western Australia Iron Ore, providing an advanced control room that allows us to optimise our production supply chain. The same approach has now been established (or is in the process of being established) at our other operated Minerals assets, such as coalstrategy maximises value and copper.

Latent capacity: Attractive returns, limited risk

Our latent capacity options are about unlocking untapped production with minimal risk. We have replenished our suite of latent capacity opportunities to optimise and debottleneck our existing mine, rig, port, rail and processing facilities. That means we can achieve more production, or replace production from our existing infrastructure, for lower cost.

The Caval Ridge Southern Circuit (CRSC) project in Central Queensland’s Bowen Basin is a good example of a latent capacity project that is starting to take shape. The CRSC will effectively link the Peak Downs Mine to the coal handling preparation plant at the neighbouring Caval Ridge mine with a new conveyor system, and in doing so, take advantage of unutilised capacity at the prep plant. The plant uses the latest coal processing technology to run very efficiently, and by linking the plant to the mining fleet at Peak Downs, will enable the business to maximise the effectiveness of both operations. We’re able to do this with minimal risk as we are able to draw on our knowledge of other BHP assets in designing and building the conveyor system.

Future options: Worked for value, timed for returns

We have a pipelinesimple and diverse portfolio of potential growth projectstier one assets. They are long life, low cost and expandable. To extract the most value and the highest returns from our assets we apply our values and culture, operate them safely and productively, and deploy technology.

This has worked for shareholders. Since 2016 we have:

To maintain this track record, we must make the most of our portfolio and develop options that secure success. Future success depends not only on our commitment to capital discipline but also social value, which is our contribution to our people, the environment and communities. It informs the way in which we provide resources, achieve commercial success and make our workplace safe. We have a responsibility to produce strong commercial, sustainable and social outcomes for our shareholders, communities and society. This inspired us to refresh our purpose to acknowledge people as the driving force behind our achievements and reflect our broader contribution. For more detail on BHP’s purpose, refer to section 1.10.1.

Transformation

Our Transformation program will continue to simplify the way we work, increase our workforce capability, establish innovative partnerships and create more stable and predictable operations, with the aim of unlocking more value. The Transformation program includes:

These will:

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For more information on these programs, refer to section 1.4.4.

Future options

We also have broad development options and exploration licences in many of the world’s premier basins, which could create significant shareholder value over the long term, in particular in conventional oil, copperterm. These options cover a range of risk, return and coal. This includes the Mad Dog Phase 2 project, which has the potential to produce up to 140,000 gross barrels of crude oil per day,optionality metrics and the Spence Growth Option. In the first 10 years of operation, incremental production from the Spence Growth Option is expected to be approximately 185 kilotonnes per annum (ktpa) of payable copper in concentrateare diversified by commodity and 4 ktpa of payable molybdenum, with first production scheduled for FY2021.geography.

Exploration: Focused on petroleum and copper

We are focused on finding new oil and copper deposits through targeted exploration. Production of these commodities is declining, while demand is forecast to increase.7

In Petroleum, we have made discoveries in four out of the six prospects tested over the past two years, across two key basins. We have also secured more than 100 highly prospective blocks in the Gulf of Mexico, and acquired the Trion discovered resource in Mexico after a competitive process.

Onshore US: Exit to maximise value and returns

On 27 July 2018, we announced that we had entered into agreements for the sale of our entire interest in the Eagle Ford, Haynesville, Permian and Fayetteville Onshore US oil and gas assets for a combined consideration of US$10.8 billion payable in cash (less customary completion adjustments). Both sales are subject to the satisfaction of customary regulatory approvals and conditions precedent. We expect completion of both transactions to occur by the end of October 2018. The effective date at which the right to economic profits transfers to the purchasers is 1 July 2018.

1.4.2    Our Operating Model

We have a simple and diverse portfolio of tier one assets around the world, withlow-cost options for future growth and value creation.

Our assets are high quality and largely located inlow-risk locations, with strong development potential.

Our Operating Model

Assets

We have a simple and diverse portfolio of tier one assets around the world, withlow-cost options for future growth and value creation.

Our assets are high quality, largely located inlow-risk locations and have strong development potential.

In addition to having the right assets in the right commodities, we also create value through howin the way we operate our assets.

Our Operating Model allows us to leverage integrated systems and technology, replicate expertise and apply high standards of governance and transparency.

Our Operating Model includes:

Assets: Assets are a set of one or more geographically proximate operations (includingopen-cut mines, underground mines and onshore and offshore oil and gas production and processing facilities). We produce a broad range of commodities through these assets. Our operated assets include assets that are wholly owned and operated by BHP and assets that are owned as a joint venture and operated by BHP. BHPWe also holdshold interests in assets that are owned as a joint venture but are not operated by BHP.

We disclose financial and other performance primarily by commodity. This provides the most meaningfulgives an insight into the nature and financial outcomes of our business activities and facilitates greater comparabilityallows us to compare our performance against industry peers.

1.4.3    Managing performance and risk

Corporate strategy and planning

Our corporate planning process is designed to deliver on our strategic objective,strategy, which is to position BHP to leverage our values, capabilities and competitive resources to meet the evolving needs of markets and to create sustainable long-term value.

To achieve this, we aspire to have the best capabilities in the natural resources industry and apply these capabilitiesapplied to a portfolio of world-classthe best assets, in the most attractive commodities.best commodities, to create long-term value and high returns.

Informed by our strategy, our annual corporate planning process is fundamentalcritical to creating alignment across BHP; itBHP. It guides the development of plans, targets and budgets to help us decide where to deploy our capital and resources.

Plans are assessed at the Group level to balance the goal of maximising the value of our individual assets with the goal of creating value and mitigating investment risks at the portfolio level. We evaluate the range of investment opportunities and aim to optimise the portfolio based on our assessment of risk, returns and returns.future optionality. We then develop a long-term capital plan and guidance for the Group.

Assessment and monitoring

We review our strategy and portfolio against a constantly changing external environment, to capture and manage emerging opportunities and risks. Our strategy is cascaded through our planning processes. Long-term scenario planning is used to identify the strategic capabilities we need to be successful in our industry and to evaluate the selection of our preferred commodities and portfolio of assets,assets. We seek to help us identify potential new business opportunities and to test the robustness of our strategyportfolio over a range of possible outcomes. We also use signals tracking to monitor near-termkey trends and events. Signals also supportevents that inform our strategic choices and to identify actions to position BHP to benefit from potential new opportunities and to mitigate risks, while helping to inform major portfolio investment decisions.

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1.4.4    Transformation overview

In FY2019, we progressed our transformation agenda to build our culture, capability and technology. The program focuses on safety improvement, simplification and value creation and comprises four key components:

Through these activities, we aim to build capability and a culture that empowers our frontline to act on their ideas and harness their ingenuity. Following are some highlights from FY2019.

BHP Operating System: Western Australia Iron Ore Port operations

The BHP Operating System is a new way of working that will align our teams to produce better safety and productivity were prioritised. The design team used innovative 3D design toolsbusiness performance. It is a company philosophy that enable designersguides leadership behaviours and practices to spot potential clashes, bottlenecks or safety issues more readily than with traditional paper-based designs.empower our teams, build capability and make problem solving and improvement part of what we do every day. Western Australia Iron Ore’s (WAIO) Port operations was the first BHP Operating System pilot site to go live in July 2018.

The deployment of the BHP Operating System program has focused on car dumper activities within production and maintenance and shutdown teams at the Nelson Point port operations, with an aim of promoting stable operations.

Throughout FY2019, the team at Nelson Point strengthened frontline safety, improved performance and introduced cultural improvements. Key achievements include:

The BHP Operating System was also deployed at WAIO’s Perth repair centre, BHP Mitsubishi Alliance’s Caval Ridge and Peak Downs, Olympic Dam, Escondida and by our Petroleum asset group.

World Class Functions: Making our functions more effective and efficient

In response to BHP’s changing operating environment and drive to increase efficiency, in recent years our global and regional functions began undertaking large-scale change and improvement efforts.

World Class Functions aims to simplify functional activity and deliver sustainable first quartile performance benchmarked against our peer group, by reducing functional costs and increasing effectiveness both in terms of what our functional teams do and how they do it.

Initiatives include renewing operating models for functions, changing functional services, including how they are delivered, as well as improving processes, tools and systems.

Maintaining our focus on culture and people will ensure the outcomes delivered by World Class Functions are embedded sustainably.

Centres of Excellence: Maintenance and Engineering Centre of Excellence

We are developing Centres of Excellence for areas including maintenance and engineering, resource engineering, projects and geoscience.

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The Maintenance and Engineering Centre of Excellence focuses on defect elimination, excellence in maintenance planning and scheduling, and embedding equipment strategies that improve the way people work.

The Maintenance Centre of Excellence was established in FY2017 in Minerals Australia and was expanded into Minerals Americas in FY2019. In August 2019, an engineering team was established within the Maintenance Centre of Excellence and the centre has since become the Maintenance and Engineering Centre of Excellence.

The centre plans and schedules all maintenance work and shutdowns across the business in a standardised way. It works in partnership with our assets and Supply and Technology functions to establish best practice equipment and supply chain strategies that use advanced analytical and risk-based processes.

Asset performance management systems have been established under the Maintenance and Engineering Centre of Excellence to detect and predict potential failures early. Practices to eliminate defects underpin our continuous improvement approach.

Maintenance costs across our fleets and fixed plant under the Maintenance and Engineering Centre of Excellence are being reduced over their lifecycle in Minerals Australia and Minerals Americas, while equipment reliability and availability have improved.

In FY2019, the Maintenance and Engineering Centre of Excellence saved over AUD$144 million in maintenance costs compared to maintenance costs in FY2018, increased availability across critical fleet by up to 5 per cent in some operations since its inception (in FY2019 compared to FY2018), and improved our prediction of a range of engine and brake system failures.

Value Chain Automation: Innovation Centre

Our first BHP Innovation Centre located at our Newman operations in Western Australia is an important part of our Value Chain Automation.

The Innovation Centre tests andde-risks new solutions and innovations developed in extraction and mine designprocesses to allow technology to support continuous improvement across all aspects of the BHP value chain.

This unique testing ground allows emerging technologies to be proven in a controlled site-based environment, while new ways of working and capability are developed to allow for successful and rapid deployment and scaling of integrated automation solutions.

In FY2019, BHP’s Innovation Centre implemented several technology-based solutions, including:

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1.4.5    Operations Services

Operations Services is an industry first and has been established to create a stronger foundation from which to achieve high performance. It has rapidly unlocked improvements in safety, production and cost outcomes for physical strengthMinerals Australia, while simultaneously providing stability for Operations Services employees and extensive manual handling have been eliminatedcontributing to supportsocial value in the hiringcommunities where we operate. Operations Services is an important element in transforming organisational capability and the way we work, along with the BHP Operating System, the Maintenance and Engineering Centre of a diverse workforce.Excellence, field leadership and technology.

The mine design also makesAustralia-wide Operations Services workforce comprises permanent employees in production, maintenance, shut downs and some operational functions, with specific scopes of work and accountabilities. Sites request Operations Services to deploy teams to specific Operations Services for fixed terms to provide production or maintenance services.

Operations Services is recruiting and training employees from a range of backgrounds, including those who are new to the mostindustry. Through its innovative approach to recruitment and onboarding, Operations Services has the highest proportion of new technology, including a conveyor that will generate its own power as it carries orefemale and Indigenous employees of any BHP production asset. This has contributed to be processed. Autonomous drills and trucks will improve boththe enhancement of organisational capability, with consequent improvements in safety and productivity.

Environmental Operations Services offers job security, considerable skills training, flexible work options and community considerations were also important inputs intowide-ranging career prospects, ultimately delivering more stability and higher performance than the project design. Dumps and roads were moved to minimise the impact on ghost bats and invertebrate fauna. The project team worked in consultation with the Banjima People, the traditional ownerscontractors they displace. Over 50 per cent of the land, to identify sensitive environmental and ethnographic and cultural sites. This engagement is ongoing,Operations Services employees are from regional communities and the mine design will be reassessedincome security that Operations Services provides is helping to minimise impact on culturally significant sites.support greater local economic activity.

1.4.4    Our locations1.4.6    Locations

BHP locations (includes non-operated)non-operated operations)

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1.5    Our performance

Key performance indicators

Our key performance indicators (KPIs) enable us to measure our sustainable development and financial performance. These KPIs are used to assess performance of our people throughout the Group. For information on our approach to performance and reward, refer to section 1.7.1.9. For information on our overall approach to executive remuneration, including remuneration policies and remuneration outcomes, refer to section 3.

Following BHP’s sale of the Onshore US assets, announced on 27 July 2018, the contribution of these assets to the Group’s results is presented in this Annual Report as Discontinued operations and related assets and liabilities reclassified to held for sale unless otherwise stated. For more information on the accounting treatment, refer to section 5.operations. To enable more meaningful comparisons with prior year disclosures, and in some cases to comply with applicable statutory requirements, the data in section 1.5 has been presented to include Onshore US, except for Underlying EBITDA. Footnotes to tables and infographics indicate whether data presented in this section 1.5 is inclusive or exclusive of Onshore US. For more information on the accounting treatment, refer to section 5.

1.5.1    Financial KPIs

Financial KPIs

In FY2018,FY2019, higher prices and a strong operating performancetogether with underlying improvements in productivity generated strong cash flow, enabling us to reduce net debt and increase our dividends.

Profit and earnings

Attributable profit of US$3.78.3 billion in FY2018FY2019 includes an exceptional loss of US$5.20.8 billion (after tax), compared to an attributable profit of US$5.93.7 billion, including an exceptional loss of US$842 million5.2 billion (after tax), in the prior period. The FY2018FY2019 exceptional loss is related to the impairment of Onshore US assets, US tax reform and the Samarco dam failure.failure, partially offset by the reversal of provisions for global taxation matters, which were resolved during the period.

Cash flow and balance sheet

Our Net operating cash flowflows (continuing operations) of US$18.517.4 billion in FY2018FY2019 (FY2018: US$17.6 billion) reflects EBITDA results and higher commodity pricesAustralian and a strong operating performance during the year.Chilean income tax payments in FY2019.

Our balance sheet wasremains strong with net debt at US$10.99.2 billion at FY2018FY2019year-end (FY2017:(FY2018: US$16.3 billion; FY2016: US$26.110.9 billion), a reduction of more than US$1517 billion over twothree years. The reduction of US$5.41.7 billion in FY2018FY2019 reflects strong free cash generation, as well as a favourablewhich includes proceeds received from the sale of Onshore US, partially offset by returns to shareholders of US$16.6 billion, dividends paid tonon-controlling interests of US$1.2 billion and an unfavourablenon-cash fair value adjustment of US$108 million0.4 billion related to interest rate and exchange rate movements, partially offset by dividends to shareholders of US$5.2 billion and dividends paid tonon-controlling interests of US$1.6 billion.movements.

Our gearing ratio⁽³⁾ in FY2018FY2019 was 15.315.1 per cent (FY2017: 20.6(FY2018: 15.3 per cent).

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Reconciling our financial results to our key performance indicators

Capital management

NetFree cash flow (continuing operations), which is net operating cash flows ofless net investing cash flows, was US$18.510.0 billion (FY2018: US$12.5 billion) reflecting a 12 per cent increase in capital and exploration expenditure to US$7.6 billion in FY2018 reflect higher commodity pricesFY2019 in line with guidance. The increase in capital and a strong operating performance duringexploration expenditure included continued investment in high-return latent capacity projects, and investment in South Flank, Mad Dog Phase 2 and the year, with free cash flow⁽¹⁾⁽³⁾ofSpence Growth Option in FY2019. Capital and exploration expenditure guidance is unchanged at below US$12.5 billion. This is the second consecutive year of free cash flow above US$12 billion.8 billion per annum for FY2020, subject to exchange rate movements.

Our dividend policy provides for a minimum 50 per cent payout of Underlying attributable profit at every reporting period. The minimum dividend payment for the second half of FY2019 was 4653 US cents per share. Recognising the importance of cash returns to shareholders, the Board determined to pay an additional amount of 1725 US cents per share, taking the final dividend to 63a record 78 US cents per share which is covered by free cash flow generated in FY2018.share. In total, dividendsUS$17.1 billion of US$6.3 billion (118 US cents per share, an increase of 42 per cent from FY2017)returns to shareholders have been determined for FY2018,FY2019 including additional amountsdividends of US$1.811.9 billion above(FY2019: US$2.35 per share; FY2018: US$1.18 per share), which includes a special dividend of US$5.2 billion (US$1.02 per share) and a sharebuy-back of US$5.2 billion. These returns are covered by total free cash flows generated of US$20.5 billion including US$10.4 billion of net proceeds from the minimum payout ratio.sale of Onshore US.

Capital and exploration expenditure increased by 29 per cent to US$6.8 billion in FY2018 in line with guidance, reflecting continued investment in high-return latent capacity projects, increased Onshore US drilling activity and an increase post the approval of Mad Dog Phase 2 and the Spence Growth Option in FY2017. Capital and exploration expenditure guidance is unchanged at below US$8 billion per annum for FY2019 and FY2020, subject to exchange rate movements.

Productivity

Strong operating performance at Escondida and Western Australia Iron Ore (WAIO) underpinned a US$374 million productivity gain in the second half of FY2018, bringing the total financial year movement to negative US$96 million. Productivity gains of approximately US$1 billion are now expected for FY2019 with strong momentum carried into FY2020.18

1.5.2    Non-financial KPIs

Capital management KPIs

Sustainability KPIs

Total shareholder return (TSR) shows the total return to the shareholder during the financial year. It combines both movements in share prices and dividends paid (which are assumed to be reinvested).   During FY2018,FY2019, TSR increased as a result of both the BHP share price and dividends paid, resulting in a 45.621.5 percentage change from FY2017.FY2018. From 1 July 20132014 to 30 June 2018,2019, BHP underperformed the sector peer group by 18.99.3 per cent and underperformed the Index TSR by 76.935.3 per cent.   For more information on our approach to capital discipline, refer to section 1.4.3.

Credit ratings are forward-looking opinions on credit risk. Standard & Poor’s and Moody’s credit ratings express the opinion of each agency on the ability and willingness of BHP to meet its financial obligations in full and on time. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by an assigning rating agency. Any rating should be evaluated independently of any other information.   Standard & Poor’s credit rating of BHP remained at the A level throughout FY2018.FY2019. It affirmed this rating on 21 November 2017.23 July 2019. Moody’s maintainedupgraded its credit rating of BHP atfrom A3 to A2 on 31 October 2018 with a positivestable outlook throughout FY2018.thereafter in FY2019.   For more information on our liquidity and capital resources, refer to section 1.11.3.1.12.3

Total recordable injury frequency (TRIF) performance increased by five7 per cent in FY2018 to 4.44.7 per million hours worked, compared to 4.24.4 in FY2017.FY2018. This was due to an increase in low severity sprain and strain type injuries in both Minerals Australia which occurred primarily in Western Australia Iron Ore and Olympic Dam. These events were not injuries that had fatal or serious injury potential.Minerals Americas.   There were two fatalitieswas one fatality at our operated assets in FY2018.FY2019.

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Sustainability KPIs

This year we are also reportingcontinue to report on the rate of high potential injuries, which are injury events where there was the potential for a fatality. We are currently able to report data for the last threefour financial years. High potential injury trends remain a primary focus to assess progress against our most important safety objective: to eliminate fatalities. High potential injuries declined by eight7 per cent from FY2017FY2018 due to a significant reduction in high potential injuries in westernreductions at Western Australia Iron Ore, Olympic Dam and further improvement in Petroleum.Potash.   For information on our approach to health and safety, and our performance, refer to section 1.9.21.10.2 and 1.9.3.1.10.3.

In FY2018, we began working towards a newOur five-year greenhouse gas (GHG) emissions reduction target. Our new target, which took effect from 1 July 2017, is to maintain our total operational emissions in FY2022 at or below FY2017 levels (7)while we continue to grow our business(3).business. Our new target builds on our success in achieving our previous five-year target.   Our operational emissions (Scopescombined Scope 1 and Scope 2 combined)(4)emissions (operational emissions) in FY2018FY2019 totalled 16.514.7 million tonnes of carbon dioxide equivalent (CO2-e)., This is a 13 per cent increase compared to thebelow our FY2017 target baseline and(8). This decrease is primarily due to an increasea change in Scope 2the electricity emissions from ourfactor for Minerals Americas business asthat resulted from the interconnection of Chile’s northern grid system, which is mainly fossil fuel-based, and southern grid system, which has a resulthigher proportion of increased production at our Escondida and Pampa Norte copper assetsrenewable energy. We have also set the longer-term goal of achieving net-zero operational GHG emissions in Chile, as well as the commissioninglatter half of this century, consistent with the new Escondida desalination plant(5)Paris Agreement. In order to set the trajectory towards achieving that goal, in FY2020 we intend to develop a medium-term target for operational emissions. We also intend to set public goals related to Scope 3 emissions.   For more information on our Scope 1 and 2 GHG emissions, as well as Scope 3 emissions in our value chain, refer to section 1.9.8.1.10.8.

Our target is to invest not less than one1 per cent of ourpre-tax profit(6)to contribute to improved quality of life in host communities where we operate and support achievement of the United Nations Sustainable Development Goals.   Our voluntary social investment performance in FY2018 saw BHP deliver projects with a continued focus on good governance, human capability and social inclusion and environment. The total investmentFY2019 totalled US$93.5 million, consisting of US$77.0555.7 million includesin direct community development projects and donations, US$7.168.9 million on community contributions at ourequity share to non-operated joint venturesventure programs, a US$16.57 million donation to the BHP Foundation and US$1.544 million to the Matched Giving and community small grants programs. Administrative costs to facilitate social investment activities at our assets totalled US$6.27 million and US$2 million supported the operationoperations of the BHP Billiton Foundation.   For information on our voluntary social investment, refer to section 1.9.5.1.10.5.

1.5.3    Our contribution in FY2018FY2019

In FY2018,FY2019, our total direct economic contribution was US$33.946.2 billion, including payments to suppliers, wages and employee benefits, dividends and other payments to shareholders, taxes and royalties, as well as voluntary social investment across our host communities.the communities where we operate. Of this, we paid US$7.89.1 billion globally in taxes, royalties and other payments to governments. Our global adjusted effective tax rate was 31.436 per cent⁽¹⁾.cent. Including royalties, this increases to 39.944.7 per cent. This significant source of taxation revenue assists governments to provide essential services to their citizens and invest in their communities for the future.

During FY2018,FY2019, we also decreased our gross debt bypaid US$3.718 billion through the repayment of maturing debt, the bond repurchase programto shareholders, lenders and fair value adjustments.investors.

As well as our direct economic contribution, we invested US$6.87.6 billion into our business through the purchase of property, plant and equipment and expenditure on exploration. This investment typically has a multiplier effect by creating new jobs within our operations and also for the suppliers on whom they rely. For example, our US$3.06 billioninvestments that were approved during FY2019 included: the investment of approximately A$200 million (BHP share) in the South Flank iron oredevelopment of the West Barracouta gas field in Bass Strait, Victoria, Australia, US$696 million (BHP share) in funding to develop the Atlantis Phase 3 project in Western Australia will provide a significantthe US Gulf of Mexico and US$256 million in funding to drill an additional economic contribution toappraisal well (3DEL) and perform further studies in the local economy through opportunities for local suppliers – around 85 per cent of the construction budget will be spentTrion field in Australia, with 90 per cent of that in Western Australia. It will also create approximately 2,500 construction jobs and 600 ongoing operational roles.

Total economic contribution in FY2018Mexico.

Figures are rounded to the nearest decimal point andpoint. All figures include data for Continuing and Discontinued operations for the financial years being reported.operations.

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1.6    Our operating environment

1.6.1    Market factors and trends

We produce raw materials that are essential to modern life. Our success is tied to the sustainable growth of both emerging and developed economies and, at the same time, the commodities we produce are integral to driving that growth.

As a result, our performance is influenced by a wide range of factors that drive a complex relationship between supply and demand. In line with our purpose of creating long-term shareholder value, we navigate those market factors by thinking and planning in decades. Our diverse portfolio of long-life,low-cost assets allows us to adapt to the changing needs of our customers and protect long-term shareholder value.bring people and resources together to build a better world.

Key trends

Our long-term view for our markets remains positive. Population growth and rising living standards are expected to continue to generate demand for energy, metals and fertilisers for decades to come. New demand centres will emerge where the twin levers of industrialisation and urbanisation are still immature today. Technology continues to advance, creating both opportunities and threats. International responses to climate change will evolve.

Against that backdrop, we are confident we have the right assets in the right commodities, with demand diversified byend-use sector and geography. Our exploration and acquisition efforts are critical to maintaining that advantage, as they create a pipeline of products to meet future demand (see section 1.6.3). Exploration is inherently risky (see section 1.6.4), as the geoscience used for locating and accessing resources is complex and uncertain. Exploration and acquisition are also subject to political, infrastructure and other risks that can impact the accessibility of resources.

In the near term, challenges remain. There has been a marked rise in geopolitical uncertainty and protectionism, which have the potential to inhibit international trade, weigh on business confidence and restrain job creation and investment.

Short term

Political and policyPolicy uncertainty

PoliticalPolicy uncertainty has continuedheightened during FY2018.FY2019. The riseescalation ofUS-China trade tensions and other protectionist measures,trade and technology transfer inhibiting policies, along with an increasingly unpredictable policy formation process in some major economies, serve to reduce consumer confidence and business certainty. By extension, this affects investment and jobs.

Modest economic growth

ProtectionismWhile they remain in place, protectionism and political uncertainty lower the achievable ceiling for global economic growth while they remain in place.growth.

Balanced risksMixed sentiments

Risks to prices in the overall portfolio appear roughly balanced, with mild upside risk in some markets offsetBusiness and investor confidence have been hit by mild downside risk in others.policy uncertainty, feeding back into commodity markets.

Prudently cautious

The operating environment is complex, with uncertainty and volatility expected to be high. However, we remain optimistic for the long term.

Long term

Growth in population, wealth

Demand for metals, energy and fertiliser is expected to increase to meet the needs of the world’s growing population and rising living standards.

UrbanisationElectrification of transport

Electrification of transport creates both risks and newopportunities for our portfolio. Demand fornon-ferrous metals has potential upside, but oil demand centres

New demand centres will emerge where the twin levers of industrialisation and urbanisation are still immature today. They include nations in South Asia, South East Asia, Africa and Latin America.could face headwinds.

Decarbonisation of power

The move towards alow-carbon economy has the potential to drive significant change. Environmental and risk concerns will drive increasing diversification of national energy sources.

TechnologyBiosphere stewardship

Technology can substantially alter the marketsUnsustainable land and water use and biodiversity loss are a danger tolong-run living standards. Leading stewardship in these areas is a key vehicle for and uses of, our products, or create new markets. This can be disruptive in both the positive and negative sense. However, markets for essential products such as ours are typically slow to change. Our diversified portfolio provides some protection against negative disruption of demand caused by technological change. From the supply perspective, advanced mining methods should drive further efficiency, unlocking high-cost resources and offsetting grade decline.creating social value.

Global long-term outlook

We anticipate ongoing increases in global living standards over the longer term, with urbanisation, industrialisation and trade expected to underpin commodity demand. The development of emerging economies in South and South East Asia should drive particular demand for industrial metals, energy and fertilisers.

The Japanese economy has slowed and we expect growth to be modest next year. Beyond the boost provided by the Tokyo Olympics, in the medium term, with monetary and fiscal policy proving ineffective at spurring domestic demand, any sustained lift in Japanese growth iswould likely to have to come from external sources.

1.6.2    Commodity performance overview

Commodity prices

The following table shows the prices for our most significant commodities for the years ended 30 June 2019, 2018 2017 and 2016.2017. These prices represent selected quoted prices from the relevant sources as indicated and will differ from the realised prices due to differences in quotation periods, quality of products, delivery terms and the range of quoted prices that are used for contracting sales in different markets. For information on realised prices, refer to section 1.12.1.13.

1.6.3     Exploration

Our exploration program is focused on conventional petroleum and copper.copper in order to replenish our resource base and enhance our portfolio. The purpose is to generate attractive, low cost, value accretivelow-cost, value-accretive options by leveraging our competitive strengths.

Several years ago, we conducted a petroleum global endowment study that informed a newDuring FY2019, our conventional petroleum exploration strategy. The results of that study are encouraging: we have made discoveries in four out of the six prospects tested over the past two years, across two key basins, secured more than 100 highly prospective blocksprogram accessed a new acreage position in the Orphan Basin in Canada, opened a new gas province in northern offshore Trinidad and Tobago, drilled the first well in deepwater Mexico operated by an international oil company and completed the world’s first deepwater exploration ocean bottom node seismic survey in the western US Gulf of MexicoMexico. BHP tested nine opportunities with the drill bit. We appraised Trion, and competitively acquireddiscovered gas offshore in both the Trion discovered resource in Mexico.north and south deepwater regions of Trinidad and Tobago.

Our copper exploration program is at an earlier stage where we continue to seek, secure and test concessions in regions such as Ecuador, Canada, southwestern United States, South Australia, Chile and Peru.

BHP exploration regions

During FY2019, we acquired the world’s first deepwater exploration ocean bottom node seismic survey in the western US Gulf of Mexico. The acquisition survey and appraisal wells at Trion. The explorationnode recovery have been completed and appraisal plan was endorsed by Pemex and approval from Mexico’s National Hydrocarbon Commission was granted in February 2018. Drilling ofwill be incorporated into our ongoing analysis, which we will continue to progress over the next appraisal well is planned for FY2019.

In Western Australia, processed 3D seismic data for the Exmouthsub-basin18 months. This will be delivered during the September 2018 quarter and willprovide key information to inform the prospectivityrisk of prospects in thisthe area.

For more detailsinformation on conventional petroleum exploration, refer to section 1.12.1.1.13.1.

Copper

Copper exploration is focused on identifying and gaining access to new search spaces to test the best targets capable of delivering tier one deposits while we maintain research and technology activities aligned with our exploration strategy. The field copper exploration activities are directed towards the discovery of large, high-quality copper deposits in Chile, Peru, Ecuador, North America and Australia. These activities encompass early stage reconnaissance work through to more advanced target definition and testing in every country where we have exploration concessions.

On 27 November 2018, we announced a copper, gold and uranium discovery at one of our exploration projects on the Stuart Shelf, 65 kilometres to the southeast of BHP’s operations at Olympic Dam. Our Copper Exploration team was responsible for the four drill hole intercepts, the most significant having grades of 3.04 per cent copper, 0.59 grams per tonne gold and 346 parts per million uranium over a drill length of 426 metres. We progressed the second phase of the drilling program in the June 2019 half and the results are currently being analysed.

In parallel, we continuecontinued to review other jurisdictions and opportunities to partner with third parties to counter the increasing exploration maturity of our existing geographies.

On 5 September 2018, During FY2019, we announced that we had acquired a 6.1an 11.2 per cent interest in SolGoldSolgold Plc, the majority owner and operator of the Cascabel porphyry copper-gold project, and in July 2019 we entered into a bindingearn-in and joint venture agreement with Luminex, both in Ecuador. We acquired a 5 per cent interest in Midland Exploration Inc., a Canadian junior company with interests in copper projects in northern Québec in Canada. In Mexico, Copper Exploration entered into a financial agreement with Riverside Resources that will enable BHP to access new search spaces. The financial agreement is focusing on early stage exploration opportunities.

Exploration expense

Exploration expense represents that portion of exploration expenditure that is not capitalised in accordance with our accounting policies, as set out in note 1011 ‘Property, plant and equipment’ in section 5.

Exploration expense for each segment over the last three financial years is set out below.

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1.6.4    PrincipalRisk management

The identification and management of risks is central to achieving our strategic objectives. It protects us against potential negative impacts, enables us to take risk for strategic reward and improves our resilience against emerging risks. BHP believes an essential element of effective risk management is to have a single, consolidated view of risks across the business to understand the Group’s full risk exposure and to prioritise risk management and governance activity. As such, we apply a single framework (known as the ‘Risk Framework’) for all risks.

Refinements were made to BHP’s Risk Framework during FY2019. There are four pillars in our Risk Framework: risk strategy, risk governance, risk process and risk intelligence.

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Risk strategy

Group Risk Architecture

In order to understand and manage the risks that BHP is exposed to, we have developed a Group Risk Architecture, which is a tool to identify, analyse, monitor and report risk. The Group Risk Architecture is currently made up of 10 Group Risk categories, which cover a number of Group Risks. Risks in BHP’s profile are connected to a Group Risk. This gives the Board and management visibility over the aggregate exposure to risks on an enterprise-wide basis and supports performance monitoring and reporting against BHP’s risk appetite.

For example, under the Group Risk of occupational safety, we have identified risks relating to the safety of our people in performing their work, such as vehicle incidents, falls from height and dropped objects.

The Group Risk Architecture (as at 30 June 2019) is illustrated below. The left column shows the Group Risk category and the columns to the right show the allocation of the Group Risks to each category. This Group Risk Architecture will change over time to reflect our strategy, changing activities and consideration of the external context. Our principal risks are shown in a darker shade of blue in the diagram below, and are described further in the Risk factors section below.

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Risk appetite

BHP’s Risk Appetite Statement has been approved by the Board and is a foundational element of our Risk Framework. It is made up of a qualitative statement for each Group Risk category that describes the nature and extent of risk we are prepared to take in pursuing our objectives. The Risk Appetite Statement defines the parameters that management is obliged to operate within and we use key risk indicators to indicate any changes to our risk exposure.

Key risk indicators

Key risk indicators (KRIs) assist in identifying whether BHP is operating within or outside of our risk appetite, as defined in our Risk Appetite Statement. They also support decision making by providing management with information about risk exposure at a group level. KRIs are defined for Group Risks to provide the data for proactive monitoring of BHP’s risk performance. Where KRI limits are exceeded, management will review potential causes to understand if BHP may be taking too little or too much risk, and to identify whether further action is required. For example, our current KRIs monitor data such as market concentration based on the percentage of revenue linked to a single jurisdiction, the number of critical cybersecurity incidents, greenhouse gas emissions relative to the FY2017 baseline and trends in the number of community complaints received.

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Risk governance

Risk management accountability and oversight is an integral part of BHP’s governance. The Board and senior management (including the Executive Leadership Team) provide oversight and monitoring of risk management outcomes. They are ultimately responsible for ensuring BHP maintains a robust Risk Framework and an effective internal control environment.

BHP uses the ‘three lines of defence’ model of risk governance and management to define the relationships and clarify the role of different teams across the organisation in managing risk. This approach is illustrated in the diagram below and integrates risk management, control definition, control improvement, governance and assurance frameworks into one governance model.

Adapted from Institute of Internal Audit Position Paper: The three lines of defence in effective risk management and control.

For example, for a loss of containment risk within the Group Risk of process safety, our first line operations personnel would be responsible for implementing pipe thickness checks to ensure corrosion is within acceptable limits. Second line functions, such as our engineering teams, would define and assure minimum standards for pipe materials and acceptable levels of corrosion. Our Internal Audit and Advisory team would then audit the effectiveness of the standards and their application, as the third line.

BHP Board and committees

The Board reviews and considers BHP’s risk profile, covering operational and strategic risks, using the Material Risk Report. The report includes an overview of the risk profile, summary of material changes to the profile, performance against KRIs and summaries of our priority group risks. The contents of this report are further described in the diagram below ‘Risk intelligence’.

The Risk and Audit Committee (RAC) assists the Board with the oversight of risk management, including by receiving a range of reports from management on all types of risk, although the Board retains overall accountability for BHP’s risk profile. In addition, the Board requires the CEO to implement a system of control for identifying and managing risk. The Directors, through the RAC, review the systems that have been established for this purpose, review the effectiveness of those systems and monitor that necessary actions have been taken to remedy any significant failings or weaknesses identified from that review. The RAC regularly reports to the Board to enable the Board to review our Risk Framework. For more information, refer to section 2.13.

The Sustainability Committee has oversight of health, safety, environment and community related (HSEC) risks. Identification and management of HSEC risks and the investigation of any HSEC incidents are undertaken by management and reported to the Sustainability Committee. For more information, refer to section 2.13.

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The Risk Appetite Statement is the mechanism by which the Board sets boundaries for taking risk. It enables management to make risk-informed decisions within the risk appetite of the Board. Performance against risk appetite is monitored and reported to the RAC and the Board, as described below. This includes reporting of performance that is outside upper or lower tolerance limits to indicate whether management is taking sufficient or excessive risk.

In FY2019, we introduced an additional second-line led review of the Group’s most significant risks, such as dam failure, to provide a further level of rigour in the management of these risks. This process, referred to as the Priority Group Risk Review process, reviews the analysis and controls for risks that could impact the Group’s viability or strategy, with findings and recommendations reported to the Board’s Risk and Audit, and Sustainability Committees. Findings and recommendations will be used to inform strategic decisions on whether to accept, reduce or further eliminate risks to align with the Group’s risk appetite, and to develop remediation plans, such as to improve risk analysis or control definition.

Additional information on risk management and internal controls is provided to the Board and the RAC by the Business Risk and Audit Committees (covering each asset group), other Board committees, management committees and our Internal Audit and Advisory team. For more information, refer to section 2.13. Our approach to risk reporting is outlined in the ‘Risk intelligence’ section.

Risk process

Our Risk Framework requires identification and management of risks to be embedded in business activities through the following processes:

Our Risk Framework includes requirements and guidance on the tools and process to manage all risk types (current, strategy and emerging).

Current risk

Current risks may have their origin inside BHP or originate as a result of BHP’s activities. These may be strategic or operational in nature and include material andnon-material risks.

The materiality of our current risks is determined by calculating an estimate of the maximum foreseeable loss (MFL). The MFL is the estimated impact sustained by BHP in the ‘worst case’ scenario for that risk. The ‘worst case’ scenario considers all potential impacts without regard to probability and assumes all risk controls, including insurance and hedging contracts, are ineffective. For example, when calculating the number of fatalities to assess MFL in an underground explosion, we might assume the maximum number of people who are allowed to enter the underground mine.

Our focus for current risks is to prevent their occurrence or minimise their impact should they occur. Current material risks are required to be evaluated once a year at a minimum to determine whether the risk exposure is within our risk appetite.

Strategy risk

Strategy risks inform, are created, or are affected by business strategy decisions or pursuit of strategic objectives. They represent opportunities as well as threats. The Risk Appetite Statement and KRIs are available to assist in determining whether a proposed course of action is within BHP’s appetite. Once a decision has been made, our risk process as described above applies. In addition to calculating the MFL, another tool available to inform decision-making is the Maximum Foreseeable Gain (MFG). The MFG is the ‘best case’ scenario that should be articulated when seeking to take risk for strategic returns. It represents the optimum return.

Our focus for strategy risks is to enable the pursuit of high-reward strategies. Therefore, as well as having controls to protect BHP from the downside risk, we will implement controls to increase the likelihood of the opportunity being realised. For example, we might establish additional governance, oversight or reporting to ensure new initiatives remain on track.

Emerging risk

Emerging risks typically have their origin outside BHP. There is often insufficient information for these risks to be fully understood and they cannot be prevented by BHP. Effective management of emerging risks is critical to strengthening our resilience to foreseeable changes and our ability to capture competitive advantages. We assess and manage emerging risks based on the expected consequence, timing and speed of the risk event, as well as the capacity for BHP to respond.

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Emerging risks are identified and initially monitored by subject matter experts. Ongoing management is handed over to risk owners when the impact and our response is defined. For example, BHP has a dedicated climate change team that monitors and manages the emerging risks relating to climate change as they evolve. However, operational aspects (such as managing the increased risk of extreme weather events) are managed by our operations.

Our focus for emerging risks is on reducing the impact should an event occur, and on advocacy efforts to reduce the likelihood of the risk manifesting. Our approach is to apply contingency controls, such as response plans, to emerging risks that are outside our appetite. These controls increase the resilience of BHP to shocks from the external environment. Emerging risks are evaluated annually to determine whether the risk remains emerging and if the exposure is within our risk appetite.

Our emerging risk process was formalised during FY2019 and in FY2020, emerging risks will be included in our Group-wide risk register.

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Risk intelligence

Board and senior management are provided with insights on trends and aggregate exposure for our most significant risks, as well as performance against risk appetite, by the Risk team. The Board also receives reports from other teams to support their robust assessment of principal risks; including internal audit reports, ethics and compliance reports and the Chief Executive Officer’s report.

A summary of the risk reports delivered by the Risk team, and how these provide additional intelligence to the Board are outlined below.

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Robust risk assessment and viability statement

TheDuring the year, the Board has carried out a robust assessment of BHP’s principal risks, including those risks that couldwould threaten the business model, future performance, solvency or liquidity.

The Directors have assessed the prospects of BHP over the next three years, taking into account our current position and principal risks.

The Directors believe a three-year viability assessment period is appropriate for the following reasons. BHP has atwo-year budget, a five-year plan and a longer-termlife-of-asset life of asset outlook. We have publicly stated our view that, while commodity prices remain volatile, our short-term outlook is optimistic. Price and exchange rate volatility results in variability in plans and budgets. A three-year period strikes an appropriate balance between long-termlong and short-term influences on performance.

The viability assessment took into account, among other things, BHP’s commodity price protocols, includingincluding:low-case prices; the latest funding and liquidity update; the long-dated maturity profile of BHP’s debt and the maximum debt maturing in any one year; the Group-level risk profile and the mitigating actions available should particular risks materialise; the regular Board strategy and portfolio discussions, which address the range of outcomes under the Capital Allocation Framework;capital allocation framework; the flexibility in BHP’s capital and exploration expenditure programs under the Capital Allocation Framework;capital allocation framework; and the reserve life of BHP’s minerals assets and thereserves-to-production life of our oil and gas assets.

The Directors’ assessment also took account of additional stress-testing of the balance sheet against two hypothetical significant risk events: a well blow outblow-out in the Gulf of Mexico and alow-price environment. A further level of robustness is added given no debt issuance is required in the three-year period, and BHP would still have access to US$6.0 billion of credit through its revolving credit facility. The Directors were also mindful of the assessment of our portfolio against scenarios as part of BHP’s corporate planning process to help identify key uncertainties facing the global natural resources sector.

In making this viability statement, the Directors have considered the divestment of Onshore US. The Directorscapital allocation framework and have also made certain assumptions regarding management of the portfolio, the alignment of production, capital expenditure and operating expenditure with five-yearfive year plan forecasts and the alignment of prices with the cyclicallow-price low price case used in the control stress case for monthly balance sheet testing.

Taking account of these matters, and BHP’s current position and principal risks, the Directors have a reasonable expectation that BHP will be able to continue in operation and meet its liabilities as they fall due.

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Risk factors

Our Group Risk Architecture currently has 10 Group Risk categories that represent BHP’s areas of risk. These categories are further broken down into Group Risks. This section highlights our most significant Group Risks. Each of the risk factors listed below could materially and adversely affect our business, financial performance, financial condition, prospects or reputation, leading to a loss of long-term shareholder and/or investor confidence.

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