Advanced Financial Accounting: BHP Billiton Segment Analysis

This report provides a detailed analysis of BHP Billiton, a leading resource company, focusing on its business operations, major customers, and markets. It examines recent developments and changes in segment reporting, including the adoption of new accounting standards like AASB 15/IFRS 15 and IFRS 9/AASB 9. The report also presents a profit and loss analysis by operating segments (Petroleum, Copper, Iron Ore, and Coal), highlighting Iron Ore's consistent profitability. Furthermore, it emphasizes the importance of segment data for investors, as it provides a more granular view of the company's performance compared to consolidated financial statements, aiding in better investment decisions. The report concludes that BHP Billiton complies with IFRS 8 'Operating Segments' and that segment data is essential for investment analysis.

Running head: ADVANCED FINANCIAL ACCOUNTING
Advanced Financial Accounting
Name of the Student
Name of the University
Author’s Note

1ADVANCED FINANCIAL ACCOUNTING
Executive Summary
The report involves in the analysis of different business and financial data of BHP Billiton. The
report talks about the major business operations of BHP Billiton along with the analysis of major
customers and market. After that, the discussion also shows the upcoming changes in segment
reporting as well as disclosure of BHP Billiton for financial reporting. The report sheds light on
the profit or loss of all four reportable segments of BHP Billiton. Lastly, the report analyzes the
reason for considering segment data for the investors.

2ADVANCED FINANCIAL ACCOUNTING
Table of Contents
Introduction......................................................................................................................................3
Background of BHP Billiton...........................................................................................................3
Recent Developments and Changes.................................................................................................4
Information about Major Customers and Markets...........................................................................5
Profit or Loss by Operating Segments.............................................................................................6
Analysis of BHP Billiton’s Report and Why Segment Data is Essential to the Investment
Analysis Process..............................................................................................................................7
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

3ADVANCED FINANCIAL ACCOUNTING
Introduction
In today’s business world, it has become the prime responsibility of the business entities
to provide all the crucial information about their operational and financial activities through
various mediums like company website, annual report and others. This helps the investors and
other users in judging the current business as well as financial position of their companies (Weil,
Schipper & Francis, 2013). The main aim of this company is the analysis of different kinds of
business information of one of the major Australian mining companies, BHP Billiton. Different
parts of this report analyze and evaluate different business information of the company related to
business segments, recent development and changes, customer as well as market and the analysis
of annual report.
Background of BHP Billiton
BHP Billiton is regarded as one of the world’s leading resource companies. BHP Billiton
emerged as a major resource company in the year of 2001 as a result of the merger of Broken
Hill Property Company Limited (BHP) and Billiton Plc. The company is headquartered at
Melbourne, Australia. The main business operation of the company can be seen in extracting and
processing minerals, oil and gas with the assistance of more than 60,000 employees and
contractors; and this major business operation of BHP Billiton can be seen in the regions of
Australia and America (bhp.com, 2018). It needs to be mentioned that BHP Billiton has its
presence all over the world; and they sell their product through sales and marketing led through
Singapore and Houston, United States. It is interesting to mention the fact that the legal entity of
BHP Billiton carries out their operations under a structure of dual listed company that has two
parent companies; they are BHP Billiton Limited and BHP Billiton Plc; the main intention of this

4ADVANCED FINANCIAL ACCOUNTING
structure is to carries out operation as a single entity. The presence of a unified Board and
Management can be seen for controlling the business operations of BHP Billiton (bhp.com,
2018).
Recent Developments and Changes
As per the 2017 Annual Report of BHP Billiton, the company prepares their financial
statements as per UK Companies Act 2006; and presents their financial statements as per the
requirements of Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ IFRS
101) (bhp.com, 2018). The company has been following these regulations for years. However,
some changes in the accounting principles will be applied from the year 2018 related to some
specific financial treatments. The first changed principle will be the adoption of AASB 15/IFRS
15 ‘Revenue from Contracts with Customers’. This modified standard involves determining
when to recognize revenue and how much revenue to be recognized. The next standard will be
IFRS 9/AASB 9 ‘Financial Instrument’ and this modified standard will include the
classification as well as financial assets measurement of the company (bhp.com, 2018). The next
principle will be IFRIC 22 ‘Foreign Currency Transactions and Advanced Consideration’
and this modified standard will include the required interpretation for the clarification of the
exchange rate to be used for assets, liabilities, incomes and expenses. The last standard will be
IFRS 16/AASB 16 ‘Leases’ and this modified regulation will make BHP Billiton to give an
explanation for leases under an on-balance sheet model with the difference between finance
leases and operating leases removed. These are the recent development and changes in the
segment reporting and disclosure of BHP Billiton (bhp.com, 2018).

5ADVANCED FINANCIAL ACCOUNTING
Information about Major Customers and Markets
The presence of some major customers can be seen in the business of BHP Billiton. BHP
Billiton delivers their products to the customers of some of the major countries like China, Japan,
Chili, Mexico and United States. BHP Billiton sells iron ore to China for making steel; they sell
copper cathode to their customers in Japan and Chili; they sell petroleum to their major
customers in Mexico and United States (bhp.com, 2018). It needs to be mentioned in this context
that BHP the marketing business segment of BHP Billiton plays a crucial role in understanding
the needs of these customers so that the right products can be delivered to them for the
maximization of business value (bhp.com, 2018).
The business operations of BHP Billiton can be seen in metals, minerals and mining
industry. It needs to be mentioned that this is the largest industry sector of Australian Security
Exchange (ASX) with the presence of over 600 companies. This industry contributes largely
towards the Gross Domestic Product (GDP) of Australia; for example, this industry contributes
10% towards the total GDP of Australia in 2012-13 (ga.gov.au, 2018). In the year 2012, the
mining industry provided employment to 266000 people directly. According to Bureau of
Resources and Energy Economic (BREE), this industry resulted to the export worth $107 billion
in 2012-13 (ga.gov.au, 2018). Some of the major competitors of BHP Billiton in this industry are
Rio Tinto, Newcrest Mining, OneSteel, Alumina Limited and others.

6ADVANCED FINANCIAL ACCOUNTING
Profit or Loss by Operating Segments
(Source: bhp.com, 2018)
(Source: bhp.com, 2018)

7ADVANCED FINANCIAL ACCOUNTING
As per the 2017 Annual Report of BHP Billiton, the entity has four reportable segments;
they are Petroleum, Copper, Iron Ore and Coal; and the company has provided financial
information about all of these reportable segments. According to the above figure, the underlying
EBITDA for petroleum, copper, iron ore and coal are $4063 million, $3545 million, $9077
million and $3784 million respectively (bhp.com, 2018). Thus, it is visible that iron ore segment
has reported highest underlying EBITDA. After that, the EBIT for petroleum, copper, iron ore
and coal are $566 million, $2006 million, $7197 million and $3050 million respectively. Here
also iron ore registered highest amount of EBIT. According to the 2017 Annual Report of BHP
Billiton, the profit before tax from petroleum, copper, iron ore and coal are $566 million, $1460
million, $6994 million and $3214 million respectively (bhp.com, 2018). Hence, it can be
observed that iron ore has been consistent in registering most amount of profit for the company.
It can also be observed that none of these reportable segments of BHP Billiton has reported loss
in the financial year of 2017. When compared to the 2016 financial results, it can be seen that all
the segments have improved figures of profit in 2017 as compared to 2016 (bhp.com, 2018). In
2016, petroleum and iron ore registered loss in EBIT that resulted to the loss before taxation for
the company. However, effective financial strategy and good performance of these segments
contributed towards profit before taxation for BHP Billiton in 2017 (bhp.com, 2018).
Analysis of BHP Billiton’s Report and Why Segment Data is Essential to the Investment
Analysis Process
Users of the financial statements only get an aggregate view of the financial performance
of the companies by understanding the information from the consolidated financial statements. It
is needed for the business entities to supplement the consolidated financial statements with the
information about their various operating segments in order to avoid the issue of information

8ADVANCED FINANCIAL ACCOUNTING
loss. In addition, in the presence of information related to operating segments, the users of the
financial statements become able to obtain information about different activities of the business
along with their performance and associated risks (Weil, Schipper & Francis, 2013). Operating
segment information highlights the financial performance of various parts of the organizations
and helps the users in better predicting the future profitability of the organizations. For this
reasons, it is needed for the business organizations to comply with the standards of IFRS 8
‘Operating Segments’ for disclosing information of the operating segments with the help of
financial statements and various notes to the financial statements. For this reason, regardless of
size, the investors should consider analyzing the financial performance of all reportable segments
for getting the actual financial performance of the companies (May, 2013).
It needs to be mentioned that the financial reports of the large companies consist of
footnotes to the financial statements where the companies provide the information about
different reportable and the same can be found in the 2017 Annual Report of BHP Billiton.
According to the 2017 Annual Report of BHP Billiton, the Consolidated Income Statement of
the company for 2017 states that the company has registered $10322 million profit before that
compared to a loss of $7259 million in 2016. At the same time, the company has registered
revenue worth $38285 in 2017. All these figures are convincing for the investors on overall basis
(bhp.com, 2018). However, when they consider the segment information for the year 2017, they
will see that petroleum segment has reported the lowest amount of profit before tax in 2017
where iron ore registered the highest. They can also see that iron ore has fetched more revenues
compared to the other segments. After the consideration segment data, investors might consider
investing in the business of iron ore instead of petroleum. It implies that the investors would
never be able to know the profitability of each segment by only considering the key financial

9ADVANCED FINANCIAL ACCOUNTING
metrics of BHP Billiton (Bazley et al., 2013). It also indicates towards the importance of segment
data for the investment analysis of the investors. In addition, it needs to be mentioned that BHP
Billiton has complied with the standards and principles of IFRS 8 ‘Operating Segments’ for
disclosing the information for their operating segments (bhp.com, 2018).
It can be seen from the above discussion that BHP Billiton has provided necessary
information about their operating segments in the annual report (Callen, 2015). It also indicates
that segment data is important for the investors in the investment analysis process as it provides
information related to the performance and financial position of different operating segments. In
addition, it shows greater accountability of the management of the companies. For all these
reasons, segment data is essential to the investment analysis process (Bazley et al., 2013).
Conclusion
The above discussion shows that BHP Billiton is a leading mining, material and minerals
company of Australia having major customers in the countries like China, Japan, Mexico, United
States and Chili. It can also be seen that the company will bring some changes in financial
reporting from the year 2018 by adopting some specific standards like AASB 16/IFRS 16,
AASB 9/IFRS 9, AASB 15/IFRS 15 and others. The above discussion shows that BHP Billiton
has registered profit in their four reportable segments such as coal, iron ore, copper and
petroleum in the year 2017. The study also shows that the investors are needed to consider the
financial data of all reportable segments of BHP Billiton for their investment decisions.

10ADVANCED FINANCIAL ACCOUNTING
References
Annual Report 2017. (2018). Retrieved from
https://www.bhp.com/-/media/documents/investors/annual-reports/2017/
bhpannualreport2017.pdf
Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., ... & DeMarzo, P. (2013).
Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.
BHP. (2018). BHP. About us Retrieved 14 August 2018, from https://www.bhp.com/our-
approach/our-company/about-us
BHP. (2018). BHP. Marketing and supply Retrieved 14 August 2018, from
https://www.bhp.com/our-businesses/marketing-and-supply
BHP. (2018). BHP. Structure and strategy Retrieved 14 August 2018, from
https://www.bhp.com/our-approach/our-company/strategy
Callen, J. L. (2015). A selective critical review of financial accounting research. Critical
Perspectives on Accounting, 26, 157-167.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
May, G. O. (2013). Financial accounting. Read Books Ltd.
Minerals Basics - Geoscience Australia. (2018). Ga.gov.au. Retrieved 14 August 2018, from
http://www.ga.gov.au/scientific-topics/minerals/basics

11ADVANCED FINANCIAL ACCOUNTING
Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.