BHP - academic assignment with distinction marks PDF

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Company BHP GROUP LIMITED FIN600 TX 2019 NAME: MEET GAJJAR

STUDENT ID: 00282850T

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Executive Summary

BHP is world leading resource company listed in Australian and UK stock exchange. BHP Australia and UK based firm are merged together and now formerly known as BHP Billiton plc. This company is very big and profit making when it talks about revenue and growth and key driver for the oil and energy segment for next ten years. BHP group has serving community from last 133 years with continuously serving more than 62000 of employees. Company’s business is very wide and operating in more than 90 locations around the world. When we look for recent financial data of company the company’s performance is good with EBITDA of US$23.2 billion and profit of US$8.9 billion (BHP Billiton Innovation Pty Ltd, 2019). Morover, company has strong performance with solid prices and capital discipline in the financial year2018 with remarkable rise in 33 per cent in profit. Company has strong foccus on their shareholders and importance about shareholder values. This report will analyse the company’s financial data and will later discuss the general financial analysis. BHP group has strong focus on corporate social responsibilty and they value this acivity. BHP paid US$7.8 billion on globally taxes and royalty and have remarkable contribution into global currency with US$33.9 billion. We will discuss about the latest financial perfomance of the comapany and analyse each and every data from last two financial year.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Contents

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Introduction 1.1

Background and Business

BHP is Anglo Australian multinational company headquarter in Melbourne, Victoria, Australia. Company’s core business in mining, metals and purification of petroleum products. Company was founded in year 1885 in outer suburb broken hill in new south wales. As per current figures BHP is largest mining company in the world and have largest market capitalization as compare to any other company. BHP and Billiton group were merged in the year 2001 with Australian broken hill proprietary company limited (BHP) and Anglo-Dutch Billiton plc and formed dual listed company. (BHP Billiton Innovation Pty Ltd, 2019). The company listed on the Australian securities exchange and one of giant company in Australia per market capitalization (ABC NEWS, 2018). BHP is a dual listed company with two companies one is BHP hroup of australia and other BHP group united kingdom and listed on UK stock exchange known as LSE and listed on asutralian stock exchange known as ASX. The company’ shares trade on the following stock exchanges. On 19 november 2018 NHP Billiton limited and BHP Billiton Plc were renamed BHP group limited and BHP Plc (BHP Billiton Innovation Pty Ltd, 2019). 

BPH BILLITON 1. Australia (ASX:BHP) 2. United states of America (NYSE:NHP)



BHP BILLITON PLC

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

1. United kingdom (LSE:BLT) 2. United states of america (NYSE:BBL)

3. South africa ( JSE:BIL) BHP dealing in various petrochemical business in Australia with high focus on iron ore, copper, coal and nickel with under leaership of Mike Henry who is president of minerals, Australia. Business of BHP is diveded into three parts 1. Minerals Australia

2. Minerals America 3. Petroleum Moreover, Business of BHP is very wide and operating more than 90 countries in the world now we will analyse company’s recent financial performance and economic outlook from annual report.

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Company Analysis CURRENT FINANCIAL PERFORMANCE

BHP is public limited company with ranked three from 200 top companies in Australia. Majority of business and revenue comes from metal mining in Australia. In the year 2018 company generated total revenue of $59,714,816,000 including sales and other revenues (BHP Billiton Innovation Pty Ltd, 2019). As per recent financial results of FY2018 company produced and earn 1. IRON ORE 238 million tons iron ore were produced with underlying EBITDA of US$8.9 billion with margin of 61% and contribution of group underlying EBITDA

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

was 39%. 2. COPPER 1753 kilotons copper were produced with underlying EBITDA and margins with US$6.5billion and 54% respectively and contribution to group was 28%. 3. PETROLEUM

120MMboe petroleum was produced with EBITDA of US$3.3billion and margin EBITDA was 62% but contribution to the group was slightly less with EBITDA of 14%. 4. COAL 72million tones coal were produced with US$4.4billion EBITDA and underlying marginal EBITDA was 49% but as like petroleum contribution to the group was less with EBITDA of 19%. So, all the core products done well in financial year 2018 so with the help of this strong financial performance was achieved this year with remarkable profit of US$3.7billion underlying EBITDA of US$23.2 billion and free cash flow of US$12.5 billion (BHP Billiton Innovation Pty Ltd, 2019) Furthermore, company has created value for their shareholders also with total dividends of 118US cents and earning per share of 69.6US cents. In financial year 2018 company has strengthened their balance sheet with net debt of US$10.9 billion also there is reduction of US$15.2 billion in two years.

Financial statements of business and economic outlook.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

We have seen company generated remarkable revenue in the year 2018 company generated total revenue of $59,714,816,000 including sales and other revenue so now this report will analyze the recent financial data of company. Financial statement is divided into profit and loss account, balance sheet and miscellaneous information. Following are financial sheet of the company from last two years. The reported currency was US dollars, but this is converted into Australian dollars. 1. PROFT AND LOSS ACCOUNT

Sales Revenue Other Revenue Total Revenue Cost of Goods Sold Depreciation R&D Expenditure Interest Received Interest Expense Share of Profits of Associates EBITDA Profit Before Tax Income Tax Expense Continuing Operations After Tax Discontinued Operations After Tax Outside Equity Interest NPAT Significant Items Dividends

58,946,210 768,605 59,714,816 5,736,848 8,493,830 N/A 434,958 2,116,704 198,568 30,101,227 19,925,651 9,465,056 10,460,595 -3,945,687 1,510,194 5,004,714 0 7,052,527

48,811,158 1,087,394 49,898,552 4,169,920 8,353,347 N/A 193,164 2,107,248 367,418 25,311,290 15,043,860 6,001,604 9,042,255 -637,578 448,466 7,956,212 0 3,878,147

As we can see company generated revenue of AUD$49,898,552 in the year 2017 and that is dramatically rise in the year 2018 with AUD$59,714,816 that more than industry standard with 119% rise. Underlying EBITDA was AUD$25,311,290 in the year 2017 that is remarkably rise with AUD$30,101,227 in the year 2018. But as we can see net profit was dramatically fall with AUD$2,951,498 in the year 2018 as

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

compared to financial year 2017. Dividends per share is increased nearly by 50% as compared to financial year 2017. 2. Balance sheet Cash at Bank Trade Debtors Inventory Other Current Assets Total Current Assets Receivables Investments Property & Plant Equipment Intangible Assets Other Non-Current Assets Total Non-Current Assets Total Assets Trade Creditors Interest Bearing Debt (Current Liabilities) Provisions (Current Liabilities) Other Current Liabilities Total Current Liabilities Interest Bearing Debt (Non-Current

21,438,547 2,508,436 5,084,411 18,422,210 47,453,604 243,144 4,689,978 90,749,446 1,050,922 7,093,051 103,826,540 151,280,144 6,178,559 3,695,789 2,735,370 6,286,623 18,896,341

19,117,872 2,505,734 4,961,488 1,857,350 28,442,445 1,084,692 5,037,133 108,735,348 5,359,974 9,392,112 129,609,260 158,051,705 5,397,797 1,676,343 2,646,217 5,632,836 15,353,193

Liabilities) Provisions (Non-Current Liabilities) Other Non-Current Liabilities Total Non-Current Liabilities Total Liabilities Share Capital Reserves Retained Earnings Other Total Equity

32,512,405 11,107,628 6,810,734 50,430,767 69,327,108 3,029,844 3,093,332 68,977,251 6,859,362 81,953,036

39,487,936 11,407,506 7,072,789 57,968,231 73,321,424 3,029,844 3,241,920 71,076,394 7,386,174 84,730,281

As we can see in the balance sheet of 2018 total cash at bank is increased with AUD$23,20,675 as compared to last year. But we can see in balance sheet total assets of BHP group was decreased with AUD$67,71,561 as compared to financial year 2017. Good thing is Total liabilities is decreased as compared to last year with AUD$39,94,316 but that is not that much effective and won’t give strength to the organization because total liabilities were decreased, and total assets were also 6

Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

decreased. Total equity was decreased with AUD$27,77,245 in the year 2018.

3. Miscellaneous

Number of Employees Number of Shares on Issue (end of period) Market Capitalization (end of period) (000) Earnings per Share (basic) (cents) Earnings per Share (diluted) (cents) Qualified Audit Report

27,161

26,146

3,211,691,105 3,211,691,105

108,908,445 94.0 93.8 0

74,768,169 149.5 149.1 0

BHP has value of their shareholders the basic earning for shareholders was AUD cent49.1 in year 2017 that is decreased with AUD cents 94. But total market capitalization increased with AUD$108,908,445.

If we talk about economic outlook of the company from different geographical locations so total business of BHP limited is divided into 90 different countries globally.

segment Name China Japan North America South Korea Rest of Asia India Australia Europe South America Unallocated

Revenue

Profit

Assets

AUD000 30,980,598 6,360,917 3,667,422 3,564,761 3,539,096 3,355,387 3,112,243 2,547,609 1,493,985 768,605

AUD000 N/A N/A N/A N/A N/A N/A N/A N/A N/A 5,004,714

AUD000 N/A N/A 11,138,697 N/A N/A N/A 60,998,076 N/A 24,675,064 54,260,285

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Rest of World Total

324,192 59,714,816

N/A 5,004,714

208,023 151,280,144

As we can see more than 50% revenue comes from China followed by Japan, north America and south Korea.

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Ratio Analysis 3.1

(see

appendix

Profitability ratios

for

2018

2017

Industry average

calculations) Return on assets Return on equity Net profit margin Gross profit margin Net Interest Income Expense ratio/Cost

41.99% 24.31% 8% 33.25% % 4%

52.89% 177.52% 16% 73.26% % 4%

6.84% 0% 10% 52% % 6%

to Income ratio Cash return on sales Earnings per share Price earnings ratio Earnings yield Dividends per share

36% 94 cents 40times 2.46% 2.19$

0.38% 149.50 cents 23times 4.21% 1.2$

7.50% $1.5 dollars 55times 7.80% 4.50$

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Discussion As we can see return on assets was decreased with 12% as compared to 2017 balance sheet and return on equity also decreased. Net profit margin was growing double as compared to last year but share price was dramatically decreased with 55.5 AUD cents.

3.2

Efficiency ratios

4. (see

2018

2017

Industry average

1.25

1.75times

0.38times

times 0.45times 0.57times

0.67times 0.38times

0.8times 0.55times

appendix for calculation s) Asset turnover

Cash return on assets Fixed Asset turnover

Discussion We can see efficiency ratio is controlled by BHP group limited with assets turnover 1.25 times and cash return on assets with 0.45times.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

Liquidity ratios

3.3

(see

appendix

FIN600 TX 2019 Assignment – BHP group

for

calculations) Current ratio Quick ratio Receivables turnover Average collection

2018

2017

Industry average

2:1 5:1 278 190

1:1 3:1 298 156

2 :1 5.5:1 255 200

period

As we can see average collection period is above the industry and average receivable turnover was also lesser with 20 days as compared to financial year 2017.

Gearing ratios

3.4

(see

appendix

calculations) Debt to equity ratio Debt ratio Equity ratio Cash debt coverage Interest cover ratio

for

2018

23.06 % 5% 173% 1% 14times

2017

Industry average

181.20% 9% 30% 2% 15times

22% 7% 50% 4% 15Times

Discussion: As we can see debt to equity ratio is rise as compared to industry average and cash debt ratio coverage is acceptable as compared to industry average.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

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FIN600 TX 2019 Assignment – BHP group

Recommendations and overall assessment

At the end of this report we have many questions in our mind, so this are few questioned I have addressed. Has Year 1 been better than Year 2 for the company? As we can see company generated revenue of AUD$49,898,552 in the year 2017 and that is dramatically rise in the year 2018 with AUD$59,714,816 that more than industry standard with 119% rise. Underlying EBITDA was AUD$25,311,290 in the year 2017 that is remarkably rise with AUD$30,101,227 in the year 2018. But as we can see net profit was dramatically fall with AUD$2,951,498 in the year 2018 as compared to financial year 2017. Dividends per share is increased nearly by 50% as compared to financial year 2017. But as we can see liabilities are also increased with increment of assets. Corporate world is all about revenues and market share so in the year 2018 company’s market share were also improved and revenue rise with 119% as compared to last year so financial year 2018 was better as compared to financial year 2017.

Will the company succeed in the future? The likelihood of a merger or acquisition?

As per the financial sheet of 2018 company should control their liabilities for long run also company should work for assets because assets are backbone for any company. Merger with Billiton group was moneymaking for BHP group and very beneficial to increasing their new shareholders and give more freedom to existing shareholder to invest more. Company’s balance sheet is very healthy, and profit is also very high and above than the industry standards.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

Suggest what should the company be doing help it succeeds? Discuss relevant ethical considerations when an organization becomes insolvent

For long term company should focus on new emerging markets and invest more and more on research and development. Before investing in new market managers should do PESTLE analysis of country. Ethics are very important in any business so company should do more and more work on ethics. Organization sustainability is vey important now days company should work on increasing assets and decrease liabilities this can achieve with right analysis of direct competitors.

The impact of the political competitive environment on the business External factors that need to be taken into consideration

Company must maintain the relations with each stakeholder and manage them accordingly. Company must think about the shareholders and their values. Business is very competitive for any company now days. So, company should think about the external and internal factors which are affecting the business.

Would you invest in this company? BHP’s share price is regularly increasing and that is more profit making for existing and new shareholders as we can see in the balance sheet profit and revenue is also above the industry standards. SO, I will defiantly invest in this company.

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

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FIN600 TX 2019 Assignment – BHP group

References/Bibliography

1. BHP Annual

Report 2018. (n.d.). Retrieved May 17, 2019, from

https://www.bhp.com/investor-centre/annual-report-2018 2. Faster, better business decisions. (n.d.). Retrieved May 17, 2019, from https://www.ibisworld.com.au/ 3. IBISWorld, Inc. (n.d.). Industry Market Research, Reports, and Statistics.

Retrieved May 17, 2019, from https://www.ibisworld.com/ 4. (n.d.).

Retrieved

May

17,

2019,

from

https://everything.explained.today/BHP_Billiton/ 5. Our business. (n.d.). Retrieved May 17, 2019, from https://www.bhp.com/ourbusinesses/

Appendices – attached Excel Spreadsheet

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

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Student name – Meet Gaurangkumar Gajjar Student Id: 0028285OT

FIN600 TX 2019 Assignment – BHP group

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