Page 45 - Annual Report 2020

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Balance sheet and liquidity
Risks associated with our ability to maintain a robust and effective balance sheet, raise debt, return value to shareholders and remain
financially liquid. Strategic Report

Why is this important to BHP?
Fluctuations in commodity prices, operational or supply chain disruptions and ongoing global economic volatility could materially and adversely
affect our future cash flows and ability to access capital from financial markets at acceptable pricing. If our liquidity and cash flows deteriorate
significantly, it may adversely affect our ability to fund our strategy.
Threats
If our key financial ratios and credit ratings are not maintained, our ability • long-term commodity price volatility and sustained low prices. For Governance at BHP
to fund current and future capital projects and acquisitions, cost of example, a prolonged low oil price may result in write downs to our
financing, solvency and our ability to return value to shareholders may petroleum reserves, and a sustained decrease in the price of iron ore
be impacted. may have significant impacts on liquidity (in FY2020, 48 per cent of
A number of risks across the Group Risk Architecture, including our our revenue was derived from iron ore), as discussed further in the
Commodity prices risk factor
principal risks, could adversely impact the Balance Sheet and liquidity
to varying degrees should they occur and depending on their severity. • inability to sell our commodities (for example, caused by physical
Examples of risks that may affect our short to medium-term cash flow blockages of shipping lanes, closure of ports or land logistics, or other
generation, profitability or the value of our assets (including reserves) restrictions to trade, including as a result of tensions between a
– and therefore the Balance Sheet and/or liquidity – include: country where we operate or sell our products and other countries
with which BHP is connected, as discussed in the Geopolitics and
• a significant reduction in production at our assets caused by material stakeholder relations risk factor)
third party performance issues and operational disruptions due to the
COVID-19 pandemic Remuneration Report
Management
The Financial Risk Management Committee (FRMC) oversees • monitor target gearing levels and credit rating metrics under a range
the financial risks across our business and endorses or approves of different stress test scenarios incorporating operational and
financial risk management strategies, mandates and activities, including macroeconomic factors
those related to commodity, currency, credit and insurance markets. • assess cash flow at risk to monitor sensitivities to market prices and
The role of the FRMC is described in sections 2.14 and 2.15. Note 22 their impact on key financial ratios
‘Financial risk management’ in section 5 outlines our financial risk • maintain target cash and liquidity buffers within ranges set by the
management strategy. Board (which are designed to sustain BHP through periods where Directors’ Report
We seek to maintain a strong Balance Sheet supported by our portfolio there is limited access to debt markets)
risk management strategy. To achieve this, we: • operate within credit limits set by frameworks approved by the FRMC
• operate a diversified portfolio, which reduces overall cash flow volatility
• maintain access to key debt markets globally and a US$5.5 billion
revolving credit facility (undrawn as at 30 June 2020)

FY2020 insights
The global economy has been impacted by the COVID-19 pandemic. Increased geopolitical uncertainty, including the impact on national economies
and the speed at which they recover from the effects of the pandemic, has further weighed on the macroeconomic outlook. There is a risk of
heightened fluctuations in commodity prices, operational or supply chain disruptions and ongoing global economic volatility, which could affect
short to medium-term cash flow generation and profitability. Financial Statements

Additional information

BHP Annual Report 2020 43 Shareholder information