Contemporary Financial & Integrated Reporting

This document provides an analysis of the core business of Rio Tinto and its competitor BHP Billiton, their financial structures, and performance. It also discusses the mining industry and its future prospects. Additionally, it covers the changes in accounting policies adopted by both companies.

Contemporary Financial & Integrated Reporting
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Core Business of the Company
Rio Tinto is recognized to be a leading global mining and metal company that is actively
involved in exploration and processing of the mineral resources of the earth. The company is
mainly of Australian origin and is recognized to be one of the largest metal and mining
companies across the world. The company has dual listing on the New York Stock Exchange as
well as ASX and the two companies carry out their operations a s a single economic entity. The
company is mainly involved in processing of mineral resources such as aluminum, copper,
diamond, gold and other industrial minerals. The company conducts its operations by its
following business segments, that are, iron ore, aluminum, copper and diamonds, energy and
minerals and other operations (Rio Tinto: Our Business, 2018).
On the other hand, BHP Billiton, that is recognized to be the major competitor of Rio
Tinto that is also an Anglo-Australian mining company operating at a global scale. The company
also possesses a dual-listed structure and is also involved n exploration and processing of various
commodities such as iron ore, coal, copper and uranium. The major business segments of the
company include petroleum, copper, iron ore and coal (BHP Billiton: Our Business, 2018).
Industry of Selected Company
Rio Tinto operates within the mineral industry similarly to that of BHP Billiton. The
mining sector contributes largely to promoting the GDP growth of Australia and is estimated that
account for about 69% of the nation’s exports. The growth of the industry has been declined in
the past but is expected to depict growth in the future context. It has been predicted by the
forecasters for mining that the production of mining is expected to growth in the coming years
with strong investment and increase in the production efficiency (The changing face of mining
jobs in Australia, 2019). As such, both Rio Tinto and its competitor BHP Billiton are expected
to depict improved financial growth and productivity in the coming period and delivering higher
performance (Fridson, 2011).
Type of Funding of Rio Tinto & Analysis of its Financial Structure
It can be stated from analyzing the annual report of the company that Rio Tinto is funded
both by external and internal sources of finance. The internal sources of finance include reserves
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and retained earnings while external sources include share capital, borrowings and other
financial liabilities (Rio Tinto: Annual Report, 2018). The financial structure includes
examination of the debt to equity resources possessed by the company that can be analyzed by
the calculation of debt to equity ratio:
Debt-Equity Ratio: Debt/Equity
Debt-Equity Ratio=41,126/49,823
Debt-Equity Ratio=0.83
On the other hand, BHP Billiton has also adopted the use of internal as well as external
sources of finance in its capital structure. The internal sources include reserves and retained
earnings while external source include debt, share capital, treasury shares (BHP Billiton: Annual
Report, 2018). The debt-equity ratio of the company is calculated as follows:
Debt-Equity Ratio=51323/60670
Debt-Equity Ratio=0.84
Thus, it can be said from the analysis of debt-equity ratio calculated for both the
companies that the ratio of debt possessed in relation to equity is similar and they are
incorporating less debt in their capital structure as compared with equity resources (Gibson,
2008).
Key elements of financial performance reported in the Director’s report
As analyzed from the director’s report of Rio Tinto, the company has realized enhanced
earnings during the financial year 2018 of $8.8 billion as compared with that of the financial year
2017 of $8.6 billion. The company has provided the highest returns to the shareholders in its
history of $13.5 billion. This is supported by improved sales revenue and EBITDA of the
company due to growth realized in its key commodity segments. The company’s balance sheet
has also remained strong with depiction of reduction in the net debt by $14.1 billion and also
delivered an increment of $0.6 billion in free cash flow in the year 2019 (Rio Tinto: Annual
Report, 2018).
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On the other hand, it has been analyzed from the director’s report f BHP Billiton that it
has realized a loss of about $5.2 billion on account of impairment of its onshore US assets.
However, the company has depicted a strong operational performance with reduction in net debt
of US $10.9 billion and a free cash flow of about US $12.5 billion (BHP Billiton: Annual Report,
2018).
Event Occurred After the Reporting Date
Rio Tinto has provided depiction of its expected free cash flow in the year 2019 of $ 0.6
billion in free ahs flow. The expected cash outflows in the year 2019 as depicted in the director’s
report of the company for the financial year 2019 is $0.3 billion. The expected net debt for the
company is expected to increase in the financial year 2019 due to increase in expected cash
outflows and dividend provided to the shareholders (Rio Tinto: Annual Report, 2018).
On the other hand, BHP Billion has also provided some addition financial information in
regards to its expected future outcomes. The productivity gains of the company are expected to
reach to about US$1 billion a reported in its annual report. The company has reported about it
future productivity in the annual report as compared with providing information about the
expected free cash flows as stated by Rio Tinto (BHP Billiton: Annual Report, 2018).
Changes in Accounting Policies
Rio Tinto have applied the accounting policies for developing the financial statements in
accordance with IFRS (International Financial reporting Standards). The company previously
sued to report its financial information by the application of UK GAAP. However, it has applied
AASB equivalent to IFRS in Australia for development of its financial statements after the year
2005. In addition to this, it has also applied Australian Corporations Act that has governed the
development of financial statements developed by ASIC and came into effect since the year
2015. The implementation of this act has caused significant chances in the accounting policies
adopted for protection of the company’s financial statements to be reported as a single economic
entity (Buffett, 2011). The financial results of its two units, that are, Rio Tinto Plc and Rio Tinto
Limited, are viewed as a single parent company and as such the amounts that are attributable to
the shareholders are incorporated within the amount attributed to the owners in its financial
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statements. In addition to this, it has also adopted changes in its accounting policies for reporting
leases as per the IFRS 9 and IFRS 15 (Rio Tinto: Annual Report, 2018).
On the other hand, BHP Billiton has also adopted changes in its accounting policies as
per the new accounting standards of AASB. The changes are applicable from the financial year
2018 that includes the application of IFRS 9 for reporting of financial instruments and IFRS 15
for reporting of revenue form contracts with customers similarly to that of Rio Tinto (BHP
Billiton: Annual Report, 2018).
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References
BHP Billiton: Annual Report. 2018. [Online]. Available at:
https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf [Accessed on: 14 April 2019].
BHP Billiton: Our Business. 2018. [Online]. Available at: https://www.bhp.com/our-businesses
[Accessed on: 14 April 2019].
Buffett, M. 2011. Warren Buffett and the Interpretation of Financial Statements: The Search for
the Company with a Durable Competitive Advantage. London: Simon and Schuster.
Fridson, M. 2011. Financial Statement Analysis: A Practitioner's Guide. US: John Wiley &
Sons.
Gibson, C. 2008. Financial Reporting and Analysis: Using Financial Accounting Information.
US: Cengage Learning.
Rio Tinto: Annual Report. 2018. [Online]. Available at:
http://www.riotinto.com/documents/RT_2018_annual_report.pdf [Accessed on: 14 April 2019].
Rio Tinto: Our Business. 2018. [Online]. Available at: https://www.riotinto.com/japan/our-
business-19788.aspx [Accessed on: 14 April 2019].
The changing face of mining jobs in Australia. 2019. [Online]. Available at: https://www.mining-
technology.com/features/mining-jobs-in-australia/ [Accessed on: 14 April 2019].
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Appendix
(Source: https://www.bhp.com/-/media/documents/investors/annual-reports/2018/
bhpannualreport2018.pdf)
(Source: http://www.riotinto.com/documents/RT_2018_annual_report.pdf)
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