BHP Billiton Limited

 

Table of Contents

Major rating factors

Rationale

The effects of macro economy and the industry on the creditworthiness

Balance sheet and Accounting Principles

Major Risks

  • Financial risk
  • Credit risk 
  • Business risk

Conclusion

 

BHP Billiton Limited

Major Rating Factors

Strengthens:

  • Diversified business lines and geographic operations
  • The top suppliers of major commodities to global market, especially shared substantial benefits from the development of new emerging economies.
  • Strong financial performance with stable and solid operating revenue 

 

 

Weaknesses:

  • Highly sensitive to the condition of global economy
  • Relies too much on China demand 
  • Exposures to substantial business risks 

 

Rationale

BHP Billiton Group (BHP) is the world largest diversified natural resources company, which is among the world’s top producers of major commodities, including aluminium, energy coal, metallurgical coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals and have substantial interests in oil and gas.

 

BHP consists of the BHP Billiton Limited Group and the BHP Billiton Plc Group as a combined enterprise, following the completion of the Dual Listed Company (DLC) merger in June 2001.

(BHP Annual report, 2011)

 

The corporate objective of BHP is to create

  • Long-term shareholder value through the discovery, acquisition, development and marketing of natural resources.

 

  • The consistent strategy of owning and operating large, long-life, low-cost, expandable, upstream assets diversified by commodity, geography and market.

 

  • The more predictable business performance over time which, in turn, underpins the creation of value for shareholders, customers, employees and the communities in which it operates.

 

BHP had US$ 102.89 billion in total assets at fiscal year-end 2011(June 30), of which 57.75 billion was equity investment that attributed to shareholders of BHP group, the total liability was US $45.14billion. Of which, the financial leverage is 178.15%, which indicates that one dollar of equity investment is corresponded to $1. 78 dollar of asset, the difference is funded by borrowing from outside of company.

It is strongly believe that BHP has well diversified.  Not only provides a range of commodities to global market, but established several regional offices and customer bases. In fact, it operates nine businesses, called Customer Sector Groups (CSGs), which are aligned with the commodities that extract and market:

  • Petroleum
  • Aluminium
  • Base Metals (including Uranium)
  • Diamonds and Specialty Products
  • Stainless Steel Materials
  • Iron Ore
  • Manganese
  • Metallurgical Coal
  • Energy Coal

In terms of earning ability, BHP performed pretty well.  As the annual report revealed, the net operating income increased by 74% in 2011 compared to 2010. In addition, the operating cash flow increased from A$ 21, 025 million in 2010 to A$ 28,010.06 million in 2011, which the growth rate is about 33.2% (Fin analysis, 2011).

 

The effects of macro economy and industry on creditworthiness of BHP

Macro economy effects

  • The overview of global economy 

The current condition of global economy has not fully escaped from recessions and the severe consequences of global financial crisis that happened since 2008. Further, the European debt crisis seems unresolved within short period, which could bring much more uncertainties to the global economy recoveries or even lead to new and severer outcomes.

The World Bank predicted that the overall growth of world economy will tend to slow but remain robust.  In terms of the U.S, the GDP growth is expected to be 2.9 percent in 2012, and with growth easing to 2.7 percent by 2013. In terms of Europe, the situation is much complicated, in some particular countries, like France and Germany, the economic performance is confidential, however, for many other countries, growth is becoming constrained by austerity policies that aim to solve the sovereign debt crisis. Overall, Euro Area GDP is expected to replicate the same performance in 2011 as in 2010, which is about 1.7%. Further, it might be strengthening to 1.8 percent in 2012 and 1.9 by 2013.

For Japan, although the horrible earthquake made a huge economic loss, the impact on GDP growth is temporary. GDP is likely to be 2.6 % in 2012 and 2% in 2013.

For developing countries, the growth is projected to decline from 7.3 to 6.2 percent between 2010 and 2012. It might be explained by the expired of policy instruments which are served to boost growth in 2010. Further, some countries are now using the tightening of monetary and fiscal policies that aim to curb the inflation problem.

Overall, global growth is predicted to decrease from 3.8 percent in 2010 to 3.2 percent in 2011. Then, it could be increased to 3.6% in 2012 and 2013.  The slowdown for high income countries is partly due to the weak growth of Japan, which suffered severe natural disasters in 2011. For other industrialized countries, they are most likely to remain broadly stable at around 2.5 % in 2012 and 2013.

(http://go.worldbank.org/HMZ7VS1N10)

It is known that any kind of business would be influenced by the macro economy environment. But the extent of impacts, vulnerability of impacts and exposures to impacts really depends on the characteristics of firms, such as size, financial structure, the main revenue sources or the elasticity of products demand.  As we have discussed above, BHP group is the world largest resources company, which provides many kinds of raw materials for industry or consumer purposes. The performance of company is absolutely associated with the world economy, especially for the operating revenue growth rate.

 

  • The China economy effects

In order to analyse the performance of BHP, it is necessary to analyse the effects of China overall economy. The reason is that as a single market, in 2011 financial year, China contributed to 28.2 % of total sales to BHP, which is as high as $20.3 billion (BHP Billiton, 2011 annual report).  As we know, China has become the second largest economy in the world and the process of urbanization and the old cities’ redevelopment program produce uncountable amount of demands to industrial products, and nearly all of those industrial products cannot be made without importing natural resources overseas. Of particular, as one of the fundamental industrial material, steel, the production process of it has to be tied with iron ore inputs.

(Fin analysis, 2011)

The graph above shows that the iron ore weights up nearly 30% on total sales in 2011, which is the highest sales figure in BHP.

 

The segmentation sales by different products, period from 2007 to 2008

(Fin analysis, 2011)

Due to the information deficit, it only could get the most important products by weights of sales from the professional data source. However, it is clear to observe that the iron ore is playing more important role in the total product lines of BHP.  In 2007, it even cannot be counted as an independent sales category, but in 2008, the iron ore had become as the third largest sales among all products.

 

The world crude steel production and the top three players’ output (million ton)

(World Steel Association, 2011)

The graph above illustrates the overall crude steel production in the world and three largest peers by economy body of that industry since 2007. It is clear to find that Chinese steel production had taken up 44.3% of the world production and is much greater than European and Japan. Through the discussions of graphs above, it is reasonable to believe that “China demand” helped BHP to generate much revenue, especially from sales of iron ore.

It is because the significance effects of “China demand”, and China is in fact the “world factory” so that BHP group is highly sensitive to the world economy and the Chinese economy condition.

(National Bureau of Statistics, China Statistical Yearbook, 2011)

The graph above shows that Chinese economy is consistent with the expanding momentum and the aggregate demand is always increasing as well in past ten years.

However, it is hard to be certain that the Chinese overall economy could be kept at two digit growth rate in foreseeable future. For exporting sectors of China, the dramatic decrease of offshore demands from European and North American since 2008 had made millions of migrant workers back to their rural families (Bloomberg News, 2009, retrieved from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aycml5Zs0eRc). To domestic industry, not only the potential political risk challenged the stable of country, but the fast rising up labour cost associated with other comprehensive production costs would bring many burdens to the development of Chinse economy. At the moment, the Chinese central government is conducting the slightly tightening monetary policy which aims to curb the inflation (http://news.xinhuanet.com/english2010/china/2011-08/13/c_131047307.htm), but the result is not certain enough. In fact, there is a debate about whether China could achieve a soft landing under the current situation (http://www.economist.com/blogs/freeexchange/2011/10/chinas-economy).

As BHP management admitted, the slow of China’s economic growth could lead to lower demand of their products and even decrease their prices of products so that negatively impact their performance outcomes (BHP group annual report, 2011).

Business risk

  • Failure to discover new reserves; not to manage existing reserves properly or unable to develop new operations
  • Changed government regulations in the countries in which BHP has significant stake at those countries 
  • Increased cost of new projects 
  • Possibly lack of skilled labours 

(All those above are picked up from BHP group annual report, 2011)

 

  1. Failure to discover new reserves; not to manage existing reserves properly or unable to develop new operations

Due to the dramatically increased demand and production of BHP’s products, the depletion of existing reserves has increased by a much greater pace. If the exploration activity cannot meet the new production needs, it is necessary connected with the decreased company’s overall performance and financial condition since the core revenue sources of BHP are from oil, gas and minerals operations.  In addition, the exploration activity itself is associated with many factors such as political risk of the operating countries, lack of infrastructures or many difficulties from economical and technical terms (BHP annual report, 2011).

 

 

  1. Changed government regulations in the countries in which BHP has significant stake at those countries

Since BHP is a multinational group and operates many activities in worldwide. It is      most likely to meet different challenges due to the different characteristics of countries where they are operating. In emerging markets, it could bear some additional risks that could have an adverse impact upon the profitability of an operation, such as terrorism, civil unrest, nationalisation, renegotiation, leases or permits. In some developed countries, such as Australia and the United States, risks present in another forms. In 2010, the mining tax (Minerals Resources Rent Tax) proposed by Federal government in Australia means that 22.5 percent additional tax on profits for Australian iron ore and coal operations. Once the new policy implicated, the operations of BHP in Australia would make a significant loss in terms of earning ability (BHP annual report, 2011).

  1. Increased costs of new projects

Due to the mineral industry is a highly specialized business and the investment projects are usually associated with many uncertainties, which means the initial investment estimations might not be adequate to complete the whole project, sometimes, it might be too costly to keep on investing. As a result, the operating cost management of company might be hard to keep in a stable range (BHP annual report, 2011).

 

  1. Labour shortages

In some particular areas, such as Western Australia and Queensland, the existing operations and especially for pipeline development projects demand many highly skilled labours. However, possible due to demographic or labour market competition effects, the Group might not be able to attract enough staff to meet the projects needs. The shortage might be adversely impact the overall cost of projects and delayed existing planning so that bring about substantial costs to company ( BHP annual report, 2011).

 

As discussions above, business risk could bring significant financial costs to BHP group and produces substantial influences on its overall performance. In particular, the operating revenue and profit are more easily to be affected by potential business risk, and further would change the financial position, which would lead to profound effects on the creditworthiness of BHP Billiton group.

 

Balance Sheet and Accounting principles :

Accounting principles

  • Dual Listed Companies’ structure and basis
  • Basis of preparation

This general purpose financial report for the year ended 30 June 2011 has been prepared in accordance with the requirements of the Australian Corporations Act 2001 and the UK Companies Act 2006 and with:

  • Australian Accounting Standards, being Australian equivalents to International Financial Reporting Standards and interpretations issued by the Australian Accounting Standards Board (AASB) effective as of 30 June 2011;
  • International Financial Reporting Standards and interpretations as adopted by the European Union (EU) effective as of 30 June 2011;
  • International Financial Reporting Standards and interpretations as issued by the International Accounting Standards Board effective as of 30 June 2011.

 

  • Basis of measurement 

The financial statements are drawn up on the basis of historical cost principles, except for derivative financial instruments and certain other financial assets which are carried at fair value.

 

  • Currency of presentation

All amounts are expressed in millions of US dollars.

 

(All information are directly extracted from BHP financial statement, 2011)

 

Balance sheet

 

BHP Billiton Limited (BHP) Summary balance sheet

     

($AUD)

 

2007

2008

2009

2010

2011

Current Assets

           

Cash

 

2,282.31

4,401.62

13,351.00

14,614.57

9,390.07

Debtors

 

3,905.97

8,309.79

4,566.18

5,801.95

5,650.43

Other Debtors

 

1,618.95

1,872.01

1,784.57

1,874.93

1,982.49

Prepaid Expenses

 

0

0

0

0

0

Inventories

 

3,883.59

5,164.14

5,941.58

6,258.36

5,730.51

Curr. Investments

 

1,121.72

2,133.80

940.35

342.60

245.83

Other CA

 

250.97

517.35

866.40

597.21

541.02

             

Total Curr. Assets

 

13,063.51

22,398.71

27,712.60

29,489.62

23,540.37

             

Non-Current Assets

           

Receivables

 

954.40

747.97

939.12

1,620.32

1,948.97

Investments

 

6,998.94

1,504.26

1,901.65

1,771.68

1,491.76

Inventories

 

133.14

241.01

246.49

402.44

338.02

PP&E

 

66,586.54

71,863.70

94,097.86

97,591.22

93,453.77

Accumulated Depr.

 

-24,112.17

-23,773.11

-35,028.35

-33,916.46

-31,041.07

Intangibles Ex. Goodwill

127.25

190.11

324.13

371.93

497.25

Goodwill

 

597.38

459.17

490.51

434.12

344.54

FITB

 

3,310.95

3,621.44

4,818.83

4,755.37

3,718.22

Other NCA

 

877.81

1,584.25

1,576.29

1,729.44

1,518.76

Total NCA

 

55,474.25

56,438.81

69,366.53

74,760.06

72,270.23

             

Total Assets

 

68,537.76

78,837.52

97,079.12

104,249.68

95,810.60

             
             

Current Liabilities

           

Accounts Payable

 

5,566.16

7,037.19

6,925.07

7,587.70

9,049.26

Provisions

 

4,563.45

5,927.70

5,574.32

4,804.65

5,807.80

S/T Debt

 

1,593.02

3,595.47

1,348.29

2,570.69

3,276.84

Other CL

 

353.48

434.24

309.34

339.08

241.18

Total CL

 

12,076.12

16,994.60

14,604.39

15,302.12

18,375.08

             

Non-Current Liabilities

           

Accounts Payable

 

170.85

143.36

230.47

550.28

516.81

L/T Debt

 

10,947.33

9,592.77

18,887.11

15,925.14

11,535.52

Provisions

 

9,447.39

11,039.89

12,585.65

14,101.84

11,203.09

Other NCL

 

644.52

506.96

597.73

492.78

399.48

Total NCL

 

21,210.09

21,282.98

32,300.96

31,070.05

23,654.90

Total Liabilities

 

33,286.20

38,277.58

46,905.35

46,372.17

42,029.98

             

Shareholders’ Equity

           

Share Capital

 

1,115.82

1,900.06

2,240.57

2,133.05

1,517.83

Reserves Ex. SPR

 

557.32

72.72

720.98

1,628.53

1,380.95

Share Prem Reserves

 

610.35

538.13

638.40

607.77

482.35

Retained Profits

 

32,672.32

37,145.23

45,391.92

52,564.82

49,474.81

Other Equity

 

0

0

0

0

0

Convertible Equity

 

0

0

0

0

0

Outside Equity

 

295.75

735.51

932.96

943.33

924.67

Total Equity

 

35,251.56

40,559.94

50,173.77

57,877.51

53,780.61

 

(BHP annual report, 2011; Fin analysis, 2011)

According to BHP’s balance sheet, following issues should be identified:

  • Most of group’s assets are identified as PP&E ($AUD 93,453.77 million). They are weighted to 97% of total asset and liquid assets of the group takes small percentage of total asset in fiscal year-end 2011.
  • In fiscal year 2011, the group holds less cash ($AUD 9,390.07 million)than year 2009 ($AUD 13,351.00 million) and 2010 ($AUD 14,614.57 million). 
  • In year 2011, the group’s payable is increasing ($AUD 9,049.26 million)compared to year 2009 ($AUD 6,925.07 million) and year 2010 ($AUD 7,587.70 million). 
  • The high level of shareholders’ equity relative to assets (56%)

 

Financial Risks

  • Interest rate risk

The company reveals an interest rate risk on its outstanding borrowing and financial investment in past year end at 30 June 2011. In fiscal year 2011, BHP holds U$ 15907 million (2010: U$ 15764 million) of interest bearing liabilities (Current: U$ 3519 million, non-current: U$ 12388 million) and U$ 367 million (2010: U$ 777 million) of other financial liabilities (Current: U$ 288 million, non-current: U$ 79 million). It indicates that BHP’s total interest bearing liabilities have been increased during past financial year which induced a higher interest rate risk. However, total financial liabilities of the group have been declined dramatically compared to previous year 2010. In addition, the group has entered into interest rate swaps and cross currency interest rate swaps. At 30 June 2011, BHP bears US$827 million of fixed rate loan which have not been swapped to floating rate and this figure is only about the one third of total fixed loan in 2010 ( U$ 2577 million). Meanwhile, the group holds total financial instrument at fair value of U$ 701 million in 2011, which is about three times of the amount  in 2010 (U$ 162 million). The figure shows that 54% of financial instruments are later than two years but not later than five years.

 

Fair value

2011

US$M

2010

US$M

Interest rate swaps

US dollar swaps

Pay floating/receive fixed

Not later than one year

Later than one year but not later than two years

Later than two years but not later than five years

Later than five years

 

 

 

49

109

248

172

 

 

 

13

90

200

288

Cross currency interest rate swaps

Euro to US dollar swaps

Pay floating/receive fixed

Not later than one year

Later than two years but not later than five years

Euro to US dollar swaps

Pay fixed/receive fixed

Later than two years but not later than five years

Later than five years

 

 

 

134

 

 

42

 

 

 

10

17

 

 

(174)

Forward exchange contracts

Euro to US dollar foreign exchange contract

Pay US dollar/receive Euro

Not later than one year

 

 

 

(53)

 

 

 

(282)

Total fair value of derivatives

701

162

 

  • Currency risk

BHP’s reporting currency is the U.S. dollar. However, the group is operating in different countries and dominated in different currencies. The table below showed the foreign currency risk arising from financial assets and liabilities which are denominated in currencies other than the functional currency of the operations.

 

 

 

2011

Net financial assets/(liabilities) – by currency of denomination

US$

US$M

A$

US$M

SA rand

US$M

GBP

US$M

Other

US$M

Total

US$M

Functional currency of Group operation

 

US dollars

Australian dollars

UK pounds sterling

 

 

 

 

(1)

(3)

 

 

 

(4,344)

 

 

 

 

187

 

 

 

 

 

23

 

 

 

 

 

(1414)

 

 

 

 

 

(5548)

(1)

(3)

 

(4)

(4344)

187

23

(1414)

(5552)

 

 

 

2010

Net financial assets/(liabilities) – by currency of denomination

US$

US$M

A$

US$M

SA rand

US$M

GBP

US$M

Other

US$M

Total

US$M

Functional currency of Group operation

 

US dollars

Australian dollars

UK pounds sterling

 

 

 

 

(1)

4

 

 

 

(1398)

 

 

 

 

90

 

 

 

 

 

31

 

 

 

 

 

(942)

 

 

 

 

 

(2219)

(1)

4

 

(3)

(1398)

90

31

(942)

(2216)

 

(BHP annual report, 2011; Fin analysis, 2011)

 

The data reveals that BHP holds U$ 5552 million of net financial liabilities and U$ 4344 million of its total liabilities are dominated in A.U. dollars at 30 June 2011, which occupies 75% of the total (2010: 68%). Other currency dominated liabilities in fiscal year 2011 are translated to U$ 1414 (24%) million and liabilities under U.S. dollar are only $U 4 million (1%). Moreover, the group have been entered into cross currency interest rate swaps (U$ 176 million) and forward exchange contracts (U$ 53 million) which can induce exchange rate risk.

 

 

Credit risk

Credit risk of the company incurs from the non-performance by counterparties of their contractual financial obligations towards the Group. The group has adopted specific measurement, including: ‘maintaining Group-wide procedures covering the application for credit approvals, granting and renewal of counterparty limits and daily monitoring of exposures against these limits’. The financial viability of all counterparties is regularly monitored and assessed under such measurement. The maximum exposure to credit risk is limited to the total carrying value of relevant financial assets on the balance sheet as at the reporting date.

The Group’s credit risk exposures include following issues:

  • Counterparties

The Group conducts transactions with the following major types of counterparties:

  • Receivables counterparties

The majority of sales to the Group’s customers are made on open terms.

  • Payment guarantee counterparties

A proportion of sales to Group customers occur via secured payment mechanisms.

  • Derivative counterparties

Counterparties to derivative contracts consist of a diverse number of financial institutions and industrial counterparties in the relevant markets.

  • Cash investment counterparties

As part of managing cash flow and liquidity, the Group holds short-term cash investments with a range of approved financial institutions.

The Group has no significant concentration of credit risk with any single counterparty or group of counterparties.

  • Geographic

BHP is currently trading in most geographic areas and credit risk is revealed in major areas including South Africa, Australia, the US, Japan and China.

 

  • Industry

 

The group faces the customer’s credit quality risk on its credit sales. The data indicate that BHP holds U$171 million of receivable past due and impairment in fiscal year 2011 and total past due amount is U$ 799 million, which is about 8% of total receivable. The detailed data are shown in text below.

 

2011

Gross

Amount

US$M

Receivables

past due and impaired

US$M

Receivables

neither past

due nor

impaired

US$M

Receivables past due but not impaired

Less than 30 days

US$M

31-60 days

US$M

61-90 days

US$M

Over 90 days

US$M

Trade  receivables

Other receivables

6219

 

4242

151

 

20

5782

 

3880

230

 

74

3

 

6

4

 

13

49

 

249

Total

10461

171

9662

304

9

17

298

 

 

2010

Gross

Amount

US$M

Receivables

past due and impaired

US$M

Receivables

neither past

due nor

impaired

US$M

Receivables past due but not impaired

Less than 30 days

US$M

31-60 days

US$M

61-90 days

US$M

Over 90 days

US$M

Trade  receivables

Other receivables

5902

 

2994

147

 

15

4907

 

2864

27

 

32

6

 

10

1

 

3

4

 

70

Total

8086

162

7771

59

16

4

74

(BHP annual report, 2011; Fin analysis, 2011)

 

 

Ratio analysis

The group’s Current assets / current liabilities ratio in fiscal year 2011 is 1.28. This figure is between 1.00-1.50, which indicates that the group is currently bearing an average risk. However, comparing to fiscal year 2010 (1.93) and 2009 (1.90), the current rate of company has decreased in last financial year and risk level has increased during the same time. The following graph shows the current ratios of BHP and its biggest rival in Australia, Rio Tinto Limited (RTL), in past five years. The relevant data reveal that BHP had relative higher current ratio than RTL in past three years previous to fiscal year 2011 and in fiscal year 2011, RTL’s current ratio has increased dramatically and is more than the rate of BHP.

(BHP annual report, 2011; Fin analysis, 2011)

 

 

In fiscal year 2011, BHP’s Debt/Equity ratio is 27.54% and it is lower than the ratio in 2010 (31.96%). The group’s Debt/Equity ratios in past five year are less than 50%, which indicate that group is currently safe according to ratio analysis.

The group’s quick ratio (acid test) has been increased form year 2007 to 2010 but dropped dramatically in fiscal year 2011. The ratios of 2007 (0.76) and 2008 (1.01) are between 0.75 – 1.25, which indicate than the group had a relatively average risk. In year 2009 and 2010, group’s quick ratios are higher than 1.25 (1.49, 1.52), so company beared a relatively low risk. In fiscal year 2011, the quick ratio of the group dropped to 0.97 and company is back to medium risk level.

 

Other relevant ratios are calculated and shown below:

BHP Billiton Limited Debt and Safety Ratios

     
   

2007

2008

2009

2010

2011

Financial Leverage

 

194.42%

194.37%

193.49%

180.12%

178.15%

Gross Gearing (D/E)

 

35.57%

32.52%

40.33%

31.96%

27.54%

Net Gearing

 

29.10%

21.66%

13.72%

6.71%

10.08%

Net Interest Exp. Cover

 

37.78

31.01

28.02

35.58

48.25

Current Ratio

 

1.08

1.32

1.9

1.93

1.28

Quick Ratio

 

0.76

1.01

1.49

1.52

0.97

Gross Debt/CF

 

0.68

0.61

0.98

0.85

0.58

Net Debt/CF

 

0.56

0.41

0.33

0.18

0.21

NTA per Share

 

5.92

7.01

8.7

10.04

9.77

BV per Share

 

6.04

7.12

8.85

10.19

9.93

Cash per Share

 

0.39

0.79

2.4

2.61

1.76

((BHP annual report, 2011; Fin analysis, 2011)

From 2007 to 2011, the financial leverage ratio for BHP was always decreasing, which means the company’s financial risk was decreasing due to the weights of liability in total asset decreased significantly. The gross gearing ratio also reflects that the amount of total debt had decreased significantly in relative to the total equity.  In addition, the net interest expense cover ratio reflects how many times that the annual interest expense could be equal to EBIT (earnings before interest and tax expenses). From 2007 to 2011, the figure had increased from 37.78 to 48.25. Even though in 2009, the figure fell down to the lowest point during the five years. In fact, the reason could be partly explained that due to decrease product demands from outside led to decrease the operating revenue as well as profit. In other words, it could prove that the financial position of BHP is highly associated with its operating activity and the macro economy conditions. From the point of Gross debt/ Cash flow or Net debt/ Cash flow, it is consistently to say that debt is hard to produce significant financial risk to BHP, the increased of operating cash flow proves that the group has enough capability to pay back debt no matter in short term or long term, which means the lower borrowing cost and provisions of new loans sustainability might be highly possible.

While, to sum up, it is undisputable to say that BHP’s financial position, especially for those safety ratios indicators presented, are kept in a very good condition so that the creditworthiness is pretty good as well.

BHP Billiton Limited Profitability ratios

     
   

2007

2008

2009

2010

2011

Net Profit Margin

 

34.23%

25.83%

22.15%

23.56%

30.15%

EBIT Margin

 

47.20%

41.02%

36.36%

37.44%

44.61%

EBITA Margin

 

47.20%

41.02%

36.36%

37.44%

44.61%

EBITDA Margin

 

53.26%

47.09%

44.04%

46.43%

51.62%

ROE

 

46.09%

40.09%

27.95%

25.70%

38.20%

ROA

 

24.40%

21.33%

15.08%

14.70%

21.83%

ROIC

 

43.83%

36.16%

27.25%

25.90%

36.44%

NOPLAT Margin

 

35.31%

27.72%

23.98%

24.84%

31.21%

((BHP annual report, 2011; Fin analysis, 2011)

The table above indicates the profitability ratios of BHP Billiton. The net profit margin experienced decrease from 2008 to 2010, however, in 2011, the margin jumped from 23.56% to 30.15%. In fact, all other ratios reflect the same trends and the figures are consistently with chairman’s view, which illustrates BHP’s financial performance is excellent in 2011. From other point of views, all those figures demonstrate the solid of group’s basic outlook. Even though in some really bad years, such as 2008 and 2009, it still be able to keep at a very high profit margins and ROE/ROA.

 

BHP Billiton Limited Cash flow Ratios

     
   

2007

2008

2009

2010

2011

Receivables/Op. Rev.

 

8.30%

13.44%

7.35%

9.34%

8.44%

Inventory/Trading Rev.

 

8.25%

8.35%

9.56%

10.08%

8.56%

Creditors/Op. Rev.

 

11.83%

11.39%

11.15%

12.22%

13.51%

Funds from Ops./EBITDA

74.99%

0.00%

0.00%

0.00%

0.00%

Depreciation/Capex

 

33.74%

40.48%

35.59%

44.31%

43.38%

Capex/Operating Rev.

 

17.96%

15.00%

21.58%

20.29%

16.15%

Days Inventory

 

30.12

30.5

34.91

36.78

31.23

Days Receivables

 

30.29

49.07

26.83

34.1

30.8

Days Payable

 

43.17

41.56

40.69

44.6

49.32

Gross CF per Share

 

3.14

3.84

3.69

3.91

4.62

Sales per Share

 

8.03

11.05

11.14

11.12

12.09

(BHP annual report, 2011; Fin analysis, 2011)

From this table above, it demonstrates the overall cash flow management of BHP group.  The ratio of Receivables/ Operating Revenue was always kept in a relatively low level from 2007 to 2011, which means the group is able to collect revenue from sales efficiently. Inventory/Trading revenue reflects the inventory management, for BHP, it still shows a very good performance.  In fact, as a resource company, the general condition of cash flow management could be kept in a sound level due to the specific transaction characteristics.

 

Conclusion

Rating:

                                                        CREDIT RATING

                                                             BHP Billiton

   Long term

    Short term

 

            A+

   

                         A

 

After viewing all relevant risks and take current global economy condition, of particular “China effect” to BHP group’s products demand and prices movement into consideration, we would like to grant A+ for BHP long term performance since the medium to long term global prospects are reasonable optimistic, this is because the main developed economy would escape from the currently deep recessions and new emerging economy such as BRIC would play greater roles in world economy development.  In addition, there are millions of population in developing countries demand large amount of industrial products, which means the mineral or petroleum resources demanded ultimately. In short term, some uncertainty factors might tackle the BHP performance, such as global weak demand and a variety of business risks. That is why we rank A for its short term creditworthiness.

 

原文链接:Credit Risk Analysis and Management