BHP Billiton: Performance and Strategy

This assignment delves into a comprehensive analysis of BHP Billiton, a global mining giant. It requires students to evaluate the company's financial performance, operational efficiency, and strategic decisions. The analysis should encompass factors like revenue streams, profitability, capital expenditures, environmental impact, and future prospects. Students are also expected to assess BHP Billiton's competitive position within the mining industry and its response to global economic trends and regulatory pressures.

BUSINESS STRATEGY
BHP BILLITON LTD
STUDENT NAME

BUSINESS STRATEGY: BHP BILLITON LTD
EXECUTIVE SUMMARY
One of the finest industries dealing in mining of metals like zinc, silver, lead and steel
making raw materials is BHP Billiton which is a large conglomerate in Australia. By
recognising potential resources available in the city of Broken Hills, the company flourished
its business. The company made many acquisitions and followed an organised way of
management. This report will analyse environmental factors of the company along with
discussing current strategy of BHP Billiton while identifying trends in Australian steel
manufacturing industries.
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Table of Contents
EXECUTIVE SUMMARY........................................................................................................2
1. INTRODUCTION..................................................................................................................4
2. INTERNAL ANALYSIS.......................................................................................................4
2.1. Assets...............................................................................................................................4
2.2. Competitiveness..............................................................................................................5
2.3. Sales, profits, share price.................................................................................................6
2.4. Strength and weaknesses.................................................................................................6
3. EXTERNAL ANALYSIS......................................................................................................8
3.1. PESTLE ANALYSIS......................................................................................................8
3.2. MICRO ANALYSIS.......................................................................................................9
4. CURRENT BUSINESS STRATEGY.................................................................................10
5. CONCLUSION....................................................................................................................12
6. REFERENCES.....................................................................................................................13
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1. INTRODUCTION
BHP Ltd was established in the year 1885 and has its headquarters situated in Melbourne in
Australia who operates in more than 25 countries globally (BHP, 2017). The company made
a quick recognition of available resources in mining business in mid-1800s as mining
industries had less governmental regulations with huge investors pouring in those days. The
company followed a trend of mergers and acquisitions in its long run one of which was made
with Billiton group in the year 2001. The company after acquisition was named BHP Billiton.
One of the biggest ventures of BHP Billiton is AUD 2 Billion mine that was started in
Western Australia and brought huge progress to local community by giving employment
opportunities to them. Currently, BHP Billiton has more than 100,000 employees, including
contractors, worldwide and revenue realised is around AU $61.2 billion annually (Market
Watch, 2017). Many incidents took place in the company like BP Oil spill, Takata Air Bags
problem, Volkswagen emissions scandal and Global financial crisis but with strategic
approach of the company, it sustained the market enormously.
2. INTERNAL ANALYSIS
2.1. Assets
As shown in the figure below, BHP Billiton leads the global resources companies with
outstanding portfolio of assets. The shareholders value plan is designed to provide the
management with opportunity to concentrate on the issues by amalgamating BHP into a sole
Australian tax resident listed company (ValueWalk, 2017).
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Figure: Mining and Petroleum Assets of BHP Billiton
Source: (ValueWalk, 2017)
2.2. Competitiveness
BHP Billiton like many other big industries has to face constant threat from its competitors
and has to face rivalry among them. One main competitor of BHP Billiton is Rio Tinto and
relation between them always prevail unbendable fight (LinkedIn Corporation , 2017).
Several equally balanced competitors present made the industrial growth rate slow down.
Few other competitors of the company are Amcor and Alcoa Inc. Other issues like higher
storage costs along with other fixed overhead costs make the company difficult to protract.
Constant threat of new entrants also becomes challenging for BHP in sustaining
competitiveness (BHP Billiton: Resourcing the Future, 2014).
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2.3. Sales, profits, share price
BHP delivers high returns to its investors through share buyback policy which gives the
company ‘A’ credit rating in global market. As shown in the figure below, the company
reported an annual sales growth of 19.6% to $18.8 billion and profit of $3.2 billion as
compared to losses made in the last year that was $5.7 billion. The recent information from
the company states that a target of $39.93 per share will be indicated in stock exchange
thereby increasing 8.3% than present value (Yu, 2017).
Figure: Sales and profits of BHP Billiton
Source: (Yu, 2017)
2.4. Strength and weaknesses
Although the weakness of the company requires BHP to improve the measures in gross
periphery and long term fiscal return on equity to match with its peers. The company also
faces human resources impacts such as lack of qualified staff and training. The company
gains opportunity in working with wider market and has lots of upcoming projects to execute
(Rodrigo, 2013). By utilising innovative and social media tools, company can strengthen its
brand position and reach to its customers by promoting brand awareness. BHP Billiton is also
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working on reducing gas emissions as shown in the below figure that shows its positive
environmental responsibility.
Figure Greenhouse Gas Emissions by BHP Billiton
Source: (BHP Billiton: Resourcing the Future, 2014)
Threats which company faces are from rising costs of suppliers and corporate collaborations.
Governmental threat also has been constant for the company along with political issues with
instability in Euro Zone in the home country. The strength which the company gains is its
strong portfolio, as shown in the figure below, and thus gives an advantage to rule the mining
industry (Rodrigo, 2013).
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BUSINESS STRATEGY: BHP BILLITON LTD
Figure: Product Portfolio of BHP Billiton
Source: (Continnum, 2011)
3. EXTERNAL ANALYSIS
3.1. PESTLE ANALYSIS
The company as large as BHP enjoys favourable governmental support as they work to
support economical activities of the country. The company also holds a strong economical
reputation while accessing low operational costs, and has advantage over its competitors in
raw materials. The cash flow of AUD was recorded 14.6 billion which made investors lose
stress about their returns (Barakaat Consulting, 2017). The mining of raw materials have
always proved to be a profitable business and since the company holds a strong reputation, it
gains an advantage over it. Socially, BHP has always tried to respect the sentiments of local
people and has successfully connected large number of people directly or indirectly to the
company. Mining opportunity was first recognised by BHP and through it; the company had
been able to invite more scrutiny from environmental and local communities while inviting
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investors from around the world to invest in. Thus with good rapport BHP follows while
dealing with the investors and local communities, the country’s economic condition are
enhanced. Technologically BHP can invest more in order to improve it growth strategy.
Presently the technology followed by the company to extract Nickel by combining acid
pressure leach with atmospheric lead has helped to gain competitive advantage over its
competitors and increased company’s cost benefits. Although the company follows strict
legal ethics, recent mishap in the factory premises had caused to raise conflicts between BHP
and government (Barakaat Consulting, 2017). Thus possess a weakness of the company that
could harm its reputation. Environmental analysis of the company has always been
favourable to BHP as climatic condition of Australia has been even for the running of the
company.
3.2. MICRO ANALYSIS
While making micro analysis of BHP, it can be seen that it has the most powerful competitive
strength in the Australian market although rivalries can be recognised due to high strategic
stakes. Also many competitors give tough competition to the company and makes company
follow diversified strategies in order to gain competition. Major competitors of BHP include
Rio Tinto, Nippon Steel, Exxon Mobil, Anglo American, Royal Dutch Shell, Chevron
Corporation, etc. (Continnum, 2011) These along with new entrants have been a major
concern for the company where the management needs treading cautiously. The low
switching costs also makes customers divert to another company. BHP Billiton is a well
established firm and thus threat regarding new entrant in minimal but shall be considered in
making company’s strategy. The bargaining power of customers seems quite powerful as
they are the one who increases the monetary aspect in supply chain. On the other hand,
loyalty within customers are hard to maintain and any circumstance where switching is good,
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they does not hesitate in changing the company. The supplier’s power seems weak for BHP
as many raw material suppliers are present in Australian market due to availability of enough
mining resources. The company has highly built infrastructure and strong market capture
which results in making the power of new entrant weak. The increased profit earning of BHP
higher than its competitors even during the time of recession shows its power in its field
(BHP Billiton: Resourcing the Future, 2014).
4. CURRENT BUSINESS STRATEGY
To enhance proper functioning of the business, BHP Billiton adopts strategies that can prove
beneficial for its business functions and ensure overall growth of the company. The BHP’s
headquarters that access all its global functions is situated at Melbourne, Australia and BHP
Billiton’s at London, United Kingdom (Samarco, 2016).. Both the companies are run by
combined team of management and holds similar board of directors. Shareholders also hold
equivalent voting rights and have equal economic hold in the company as a whole. The
company’s strategy is to operate long term, huge, cost efficient, expandable and up streaming
assets in diversified manner by utilising all available resources, geography and market. The
company also follows a stable organisational structure, as shown in the below figure, and has
facilitated itself to distribute superior precincts through fiscal and service succession for
many years (BHP BILLITON FINANCIAL STATEMENT, 2017).
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Figure: Organisational structure of BHP Billiton
Source: (BHP BILLITON FINANCIAL STATEMENT, 2017)
The number of days taken by BHP to change the sale into ready money as compared to other
firms is very fast which shows that the company has superior management. Major customers
dealing in materials mined by BHP consists of brass mills and electricity generating utilities.
The company has always delivered superior profits to its shareholders with having a
disciplined execution quality of staunch strategy of operating and purchasing. The strategy of
the company enables it to expand its flexible assets globally while utilising all available
resources to its maximum. The company’s diversification strategy depends on the availability
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of natural resources available at those locations where they purchase or sell the products
(Gordon, 2007).
5. CONCLUSION
The above analysis suggests the company to manage its operations more tactically as any
mineral based industry is risk endeavoured whether it is any small enterprise or a huge like
BHP Billiton (Hobbs, 2013). With change in demands among customers and risks of oil
spills, the companies clearing costs may augment and affect the commodity price that can
make BHP’s profits impulsive. Therefore acquiring assets in geographically diversified areas
along with quality maintenance can provide secure returns and growth expansion. The
company must also look more strategically in its threats and current issues and create more
technical and modern approach to deal the situations. After making internal and external
analysis of BHP, on concluding note it can be said that the company possess strong market
presence in Australian market and with strategic management policy it follows, has the ability
to become one of the largest company worldwide.
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6. REFERENCES
Barakaat Consulting, 2017. BHP Billiton SWOT and PESTLE Analysis. [Online] Available at:
http://www.swotandpestle.com/bhp-billiton/ [Accessed 16 September 2017].
BHP BILLITON FINANCIAL STATEMENT, 2017. UNITED STATES SECURITIES AND
EXCHANGE COMMISSION: BHP Billiton Ltd. [Online] Available at:
https://www.sec.gov/Archives/edgar/data/811809/000119312510213954/d20f.htm [Accessed
16 September 2017].
BHP Billiton: Resourcing the Future, 2014. Value through Performance: Annual Report
2014. [Online] Available at: http://www.bhp.com/~/media/bhp/documents/investors/annual-
reports/bhpbillitonannualreport2014.pdf [Accessed 16 September 2017].
BHP, 2017. Bhp.com. [Online] Available at: http://www.bhp.com/our-approach/our-history
[Accessed 16 Septmber 2017].
Continnum, Q., 2011. Equities Spotlight: BHP. [Online] Available at:
https://www.macrobusiness.com.au/2011/05/equities-spotlight-bhp/ [Accessed 16 September
2017].
Gordon, J.L., 2007. BHP Billiton: Strategic Options. [Online] Available at:
http://pierre.benain.free.fr/MBA698%20BHP%20Billiton%20Report.pdf [Accessed 16
September 2017].
Hobbs, M., 2013. Climate change is a ‘strategic risk’ for BHP: Dunlop. [Online] Available
at: http://www.afr.com/business/climate-change-is-a-strategic-risk-for-bhpdunlop-20131018-
j08n6 [Accessed 16 September 2017].
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LinkedIn Corporation , 2017. BHP Billiton vs. Rio Tinto. [Online] Available at:
https://www.slideshare.net/eholmes80/bhp-billiton-vs-rio-tinto [Accessed 16 September
2017].
Market Watch, 2017. BHP Billiton Ltd. ADR. [Online] Available at:
http://www.marketwatch.com/investing/stock/bhp/financials/cash-flow [Accessed 16
September 2017].
Rodrigo, 2013. BHP Billiton SWOT Analysis and Porter Five Force Analysis. [Online]
Available at: https://writepass.com/journal/2013/01/bhp-billiton-swot-analysis-and-porter-
five-force-analysis/ [Accessed 16 September 2017].
Samarco, 2016. BHP Billiton outlines strategy to grow value. [Online] Available at:
http://www.bhp.com/media-and-insights/news-releases/2016/05/bhp-billiton-outlines-
strategy-to-grow-value [Accessed 16 September 2017].
ValueWalk, 2017. Elliot Management – The BHP Shareholder Value Unlock Plan. [Online]
Available at: https://www.valuewalk.com/2017/04/elliot-management-bhp-shareholder-
value-unlock-plan/ [Accessed 16 September 2017].
Yu, M., 2017. Great Recovery by BHP Billiton: An analysis of the world’s largest miner.
[Online] Available at: https://www.gurufocus.com/news/502226/great-recovery-by-bhp-
billiton- [Accessed 16 September 2017].
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