Overview of BHP Billiton

BHP Billiton is recognized as one of the leading resources company in the world. The main operations of the company encompass the extraction of the minerals, oils and natural gases. The present employee strength of the company has been depicted with 62,000 employees in the Americas and Australia. The products of the company are widely sold across various markets of Singapore and Houston, United States (BHP, 2018). 

Rio Tinto is global giant with its innovative approach in developing the largest and the best quality of mines. The present operations of the company are spread across more than 35 nations in six continents. The initiatives taken by Rio Tinto is based on associating with customers in new markets, and with local societies (Riotinto.com, 2018). The study aims to prepare a comparative report of both the companies by using industry average information.

Among the group of Twenty largest shareholders as at 24 August 2017, HSBC Custody Nominees (Australia) Limited. The issued capital of the company has been depicted with 25.09%. JP Morgan Nominees Australia Limited holds 13.89% of the issued capital. Another notable shareholders of the company can be considered with Citicorp Nominees Pty Ltd with 5.47%

Substantial shareholder of Rio Tinto is seen with BlackRock, Inc with a shareholding percentage of 6.28%. In addition to this, Shining Prospect Pte Ltd. is considered to be most significant shareholders with 13.10%. Some of the other noteworthy shareholders are seen with The Vanguard Group, Inc with a total percentage of 5% and BlackRock Group is seen with shareholding of 5.15%. 

The executive leadership of BHP Billiton is maintained with Executive Leadership Team (ELT) who is responsible for day-to-day management of the group. This is required for delivering the overall strategic objectives of the business. It needs to be also seen that the OM of the company measured as per the OMC, who is responsible for controlling, directing and planning of the activities associated to BHP Billiton. The consideration of the important aspects by the management team has also considered the risk factors and realization of the value of the business.

The management team at Rio Tinto has emphasized on the sustainable development of the strong commitments pertaining to the environmental management which is required for building string relationship of government, civil society and community links.  The “critical risk management (CRM)” has also considered the fatality of the prevention program for accessing more than 60 sites. The management programs are also seen with promoting the mental health awareness and fatigue management initiatives.

Overview of Rio Tinto

The board of directors of BHP Billiton has been depicted in terms of the Ken MacKenzie, who is the chairman and Independent non-executive director since 1^st September 2017.  Among the non-independent directors Andrew Mackenzie was appointed as the Chief Executive Officer on 10 May 2013. It needs to be also discussed that some of the other significant directors of the company can be identified with Malcolm Brinded, who is the Independent Non-executive Director of BHP Billiton. Some of the other names which are eminent in the list of Independent Non-executive Director of the company includes Malcolm Broomhead, Anita Frew, Carolyn Hewson, Lindsay Maxsted, Wayne Murdy and Shriti Vadera. It needs to be further discusses that in the group of the non-executive directors Margaret Taylor can be also depicted as Group Company Secretary and Chairman of the Disclosure Committee(Bhp.com, 2018).

The information extracted from the annual report of Rio Tinto shows that the key committee memberships in the list of board of directors of the company needs to be discerned with Audit Committee, Nominations Committee, Remuneration Committee, Sustainability Committee, Chairman’s Committee and Jan du Plessis (R, N and C). Among the list of directors Jan du Plessis is the Chairman of the company from 5 March 2018. Some of the external appointments of the company includes Chris Lynch (C) as the Chief financial officer. In addition to this, Megan Clark AC (S, N and R) is the Independent non-executive director since November 2014 who is the Chairman of the Sustainability Committee. Moreover, Simon Thompson (R, A and N) and Hon. Paul Tellier (A, R and N) is the Independent non-executive director of Rio Tinto. In addition to this, Sam Laidlaw (N and S) is the Independent non-executive director of Rio Tinto (Riotinto.com, 2018).

In terms of BHP Billiton, the compensation of the directors from the single total figure of remuneration shows that Andrew Mackenzie has received 2,468 in 2013 7,988 in 2014, 4,582 in 2015, 2,241 in 2016 and 4,554 in 2017. The STI percentage of Andrew Mackenzie is seen as 57 % as on FY 2017. The STI percentage of Marius Kloppers is depicted as 47% while the LTI percentage is inferred as 65%. The compensation and financial assistance is further seen in terms of the development and execution of the environmental and socio-economic programs to remediate and provide compensation for damage due to various reasons.

In terms of RioTinto, any compensation which is provided to an executive outside the group is seen to be forfeited as per the variable remuneration. As per the compensation report of the company Jean-Sébastien Jacques’s total remuneration can be seen with $ 4452 in 2017. The compensation of some of the other key personnel of the company can be clearly depicted with Bold Baatar receiving $ 2521 and Joanne Farrell receiving $ 2139.

Management Team and Board of Directors

The total equity attributable to the shareholders of BHP Billiton can be seen with $ 57,258 in FY 2017. There is no information available on issue of new equity by the company.

The total equity attributable to the shareholders of Rio Tinto can be identified with $ 51115 in 2017. Therefore, in terms of equity composition BHP Billiton is in better position.

The total debt of BHP Billiton in 2017 is inferred with $ 54280. The debt composition as per total asset can be inferred with 46.3%. The main sources in the debt structure of the company can be inferred with Trade and other payables, Interest bearing liabilities, Other financial liabilities, Current tax payable, Provisions and Deferred income.

The total liabilities of the company can be clearly discerned in terms $ 44611 as per the FY 2017. The debt composition of the company can be further seen to be inferred with 46.6%. Therefore, both the companies are considered with an equal performance in terms of debt composition. Some of the main sources of the debt can be seen with Borrowings and other financial liabilities, Trade and other payables, Deferred tax liabilities and Provisions including post-retirement benefits.

The dividend policy of BHP aims to provide the relevant services for providing a minimum of 50% of the payout associated to the underlying attributable profit. The board has further included the relevant sources of the information associated to the dividend policy which are seen to be depicted as per enabling stability, flexibility thereby creating the reward for the shareholders as well including the relevant information which are seen in a more volatile environment.

The discussion about the dividend policy of Rio Tinto is included under the relevant discussions of Capital and liquidity risk management shows that in February 2016, three was a progressive improvement in the dividend policy of the company. The dividend policy adopted in February 2016 depicts that at the end of each financial year, the board was able to determine an appropriate level of the dividends which are associated to major commodities and long-term growth prospects. The board has further expected the long-term growth prospects of the business in terms of varied types the provisions which are seen to be considering the overall return of 40-50%.

As per the summary of the financial performance in 2017 it needs to be seen that BHP as stated about the demerger of South 32 during FY 2015. The cash disposed as per the demerger of South 32 can be clearly discerned as $ (586). The demerger of South 32 shows that the existing commitment of the for the value of the shareholders can be clearly seen with the priorities which are able to aligned with the non-core and long-term strategy. The demerger pertaining to South32 in FY2015 can be seen with IFRS 5/AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations.

Financial Performance

In terms of Rio Tinto, the ability of the group to raise adequate funds pertaining to the planned expenditure like capital growth, mergers and acquisition can be clearly seen with mergers and acquisition made by the company. Alcoa Corporation is considered as the logical comparator for Rio Tinto after the demerger of Alcoa Inc.

In order to perform the comparative evaluation of both the companies the study has considered the significant items from the annual report of the company. In this aspect Rio Tinto has demonstrated an operating cash flow of USD 13.9 billion for recording of full year dividend amount to USD 5.2 billion. The overall robustness in the operational performance of Rio Tinto can be clearly inferred in terms of the mine-market productivity. Rio Tinto was able to reduce the net debt to $ 3.8 billion in 2017.

On the other hand, BHP Billiton is seen with a total attributable profit of USD 5.9 Billion and underlying EBITDA of 20.3 billion. In addition to this, total free cash flow of the company can be clearly seen with an amount of USD 12.6 billion. BHP has demonstrated an improved sense of responsibility in terms of increasing productivity related to securing accumulated productivity gains of USD 12 billion.

The computation of the valuation of the stock has been performed with the application of Dividend Discount model. In this model, at fist the required rate of return is computed as 3.32% for BHP Billiton and Rio Tinto as 2.93%. In order to perform the analysis with the use of DDM we have computed the ROE of both the companies. As per this assertion it can be clearly seen that Rio Tinto is identified with an improved performance of 23% in compared to 10% for BHP Billiton.

The present value of the stock can be seen as 28.29 for BHP Billiton and 22.32 for Rio Tinto. Therefore, it can be clearly seen that the stock performance of BHP Billiton is seen with better performance.

Conclusion

The discourse of the Major shareholders of the company has been able to show that HSBC Custody Nominees (Australia) Limited has been depicted with 25.09%. Shining Prospect Pte Ltd. is considered to be most significant shareholders with 13.10% for Rio Tinto. It needs to be also inferred that the executive leadership of BHP Billiton is maintained with Executive Leadership Team (ELT) who is responsible for day-to-day management of the group. This is required for delivering the overall strategic objectives of the business. The management team at Rio Tinto has emphasized on the sustainable development of the strong commitments pertaining to the environmental management which is required for building string relationship of government, civil society and community links.  Compensation of directors and top executives have shown that BHP Billiton have been seen with receiving $ 4,554 in 2017.

Furthermore, in terms of Rio Tinto, any compensation which is provided to an executive outside the group is seen to be forfeited as per the variable remuneration. In terms of the debt structure both the companies are considered with an equal performance in terms of debt composition. The dividend policy of the BHP Billiton aims to provide the relevant services for providing a minimum of 50% of the payout associated to the underlying attributable profit.

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