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Financial Analysis of BHP Billiton Report

   

Added on  2020-05-28

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Financial Analysis of BHP Billiton1

Description of Company: BHP Billiton LimitedBHP Billiton is a multinational company operating in many countries across the globe.The company started operations in the year 1851 and since then it has grown manifold expandingthe business to various countries outside its origin country, Australia (BHP Billiton, 2018). Thecompany is head quartered in Melbourne, Australia but since it has business in the USA and theUK also so it has subsidiaries spread in these countries. The company’s stock is listed and trades,apart from on the Australian Stock Exchange (ASX), on London Stock Exchange (LSE) andNew York Stock Exchange (NYSE) also. The lead business of the company is to explore anddistribute the natural resources which it operates through four segments such as petroleum, coal,copper, and iron ore (BHP Billiton, 2018). Here, a report has been prepared to analyze thefinancial performance of BHP Billiton Limited and recommend the investors for investment inthe company. Discussion of Form and Content of Annual ReportThe annual report is an essential document that each and every listed company inAustralia has to submit to ASX annually (Dagwell, Wines, and Lambert, 2015). The annualreport of BHP Billiton Limited for the year 2017 has been submitted to ASX and it is availableon its website for public use. Anybody who wants can retrieve soft copy of the annual report ofthe company from the bhp.com investor relations section. The annual report of BHP Billiton isquite vast containing total 292 pages due to vide spread business (BHP Billiton, 2018).Mainly, the annual report of BHP Billiton is divided into seven major sections. The firstmajor section contains strategic report, which initiates with chairman’s message and goesthrough discussion on company’s strategies, vision, and its sustainability. Further, the strategic2

report also provides financial performance of the company at a glance. The second major sectionof the annual report contains governance at BHP Billiton. The section provides essentialinformation on the arrangements made and the steps taken by the company to ensure stronggovernance within its business (BHP Billiton, 2018). The matters connected with the governance such as composition of board of directors,independence of the board, formation of different committees namely remuneration committeeand risk committee etc have been discussed here (BHP Billiton, 2018). Further, other matterssuch as disclosure of remuneration of board and its shareholding in the company are alsoincluded here. Extracting this information the shareholders can ensure the board is acting on theprinciples of legitimacy and in the best of their interest (Dagwell, Wines, and Lambert, 2015).Further, section three of annual report specially reports on the remuneration drawn by thedirectors. The section four contains director’s report which provides information on theperformance of director’s duties. The section five of annual report is the most important onebecause it contains the financial statements of the company and auditor’s report on thesefinancial statements. For the year 2017, the financial statements of BHP Billiton were audited byone of the world’s biggest accounting firms, KPMG (BHP Billiton, 2018). The audit was conducted in accordance with the Australian auditing standards and alsothe international auditing standards. The auditors have issued unqualified audit opinion certifyingthat the financial statements of the company comply with the corporation’s act 2001 and theAustralian accounting standards (BHP Billiton, 2018). Financial Analysis of BHP BillitonKey Trends in Financial and non financial Performance3

The financial performance of BHP Billiton has been quite volatile in the recent past fiveyears as could be observed from the trend in profitability shown in appendix-1. The net profit ofthe company was approx $11 billion in the year 2013 which increased to approx $14 billion inthe year 2014 (Appendix-1). However, the profits of the company dropped severely down toapprox $3 billion in the year 2015 and in the next year the company incurred losses. The demandof minerals like coal and iron ore in Australia diminished significantly in the year 2015 and2016. In particular, China, which has been a major importer of coal and iron ore from Australia,reduced its imports of coal and iron ore from Australia (Menezes, 2016). Due to decrease indemand, the Australian producers of coal and iron were forced to reduce the prices, whichcaused reduction in the profitability. In order to recover the impact of reduction in prices, BHPBilliton reduced the cost of production and operations which is evident from the appendix-2. Theunit of coal production was reduced from $148 per tonne in 2012 to $60 per tonne in 2017.Likewise, the cost iron ore was reduced from $30 per tonne in 2012 to $15 per tonne in 2017(appendix-2).Figure 1: Trend in Financial Performance and Position4

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