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Financial risk management - Fair values
 6 Months Ended
Dec. 31, 2018
Text block [abstract]  
Financial risk management - Fair values
11.

Financial risk management – Fair values

All financial assets and financial liabilities, other than derivatives, are initially recognised at the fair value of consideration paid or received, net of transaction costs as appropriate, and subsequently carried at fair value or amortised cost, as indicated in the tables below. Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value.

The carrying amount of financial assets and liabilities measured at fair value is principally calculated based on inputs other than quoted prices that are observable for these financial assets or liabilities, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices). Where no price information is available from a quoted market source, alternative market mechanisms or recent comparable transactions, fair value is estimated based on the Group’s views on relevant future prices, net of valuation allowances to accommodate liquidity, modelling and other risks implicit in such estimates.

The inputs used in fair value calculations are determined by the relevant segment or function. The functions support the assets and operate under a defined set of accountabilities authorised by the Executive Leadership Team. Movements in the fair value of financial assets and liabilities may be recognised through the income statement or in other comprehensive income.

For financial assets and liabilities carried at fair value, the Group uses the following to categorise the method used:

 

Fair value hierarchy

   

Level 1

   

Level 2

   

Level 3

Valuation method

    Based on quoted prices (unadjusted) in active markets for identical financial assets and liabilities.    Based on inputs other than quoted prices included within Level 1 that are observable for the financial asset or liability, either directly (i.e. as unquoted prices) or indirectly (i.e. derived from prices).    Based on inputs not observable in the market using appropriate valuation models, including discounted cash flow modelling.

The financial assets and liabilities are presented by class in the table below at their carrying values, which generally approximate to fair value. In the case of US$3,019 million (30 June 2018: US$3,019 million) of fixed rate debt not swapped to floating rate, the fair value at 31 December 2018 was US$3,366 million (30 June 2018: US$3,434 million) included within Notes and debentures in the table below.

For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There were no transfers between categories during the period.

For financial instruments not valued at fair value on a recurring basis, the Group uses a method that is categorised as Level 2.

 

Financial instruments categorised as level 3 are shares and other investments and other derivative contracts. The potential effect of using reasonably possible alternative assumptions in these models, based on a change in the most significant input, such as commodity prices, by an increase/(decrease) of 10 per cent while holding all other variables constant will increase/(decrease) profit after taxation by US$45 million (31 December 2017: US$50 million).

Financial assets and liabilities

 

     IFRS 13 Fair
value
hierarchy
Level		   

IFRS 9 Classification(1)

    31 Dec 2018

US$M

      30 June 2018
US$M		  

Fair value hierarchy(2)

            

Current cross currency and interest rate swaps

    2    Fair value through profit or loss      1        12  

Current other derivative contracts(3)

    2,3    Fair value through profit or loss      219        170  

Current other investments(4)

    1,2    Fair value through profit or loss      17        18  

Non-current cross currency and interest rate swaps

    2    Fair value through profit or loss      335        396  

Non-current other derivative contracts(3)

    2,3    Fair value through profit or loss      186        195  

Non-current investment in shares

    3    Fair value through other comprehensive income      33        33  

Non-current other investments(4)(5)

    1,2,3    Fair value through profit or loss      331        375  
        

 

 

     

 

 

  

Total other financial assets

            1,122        1,199  

Cash and cash equivalents

       Amortised cost      15,575        15,871  

Trade and other receivables(6)

       Amortised cost      5,117        1,799  

Provisionally priced trade receivables(6)

    2    Fair value through profit or loss      1,066        1,126  

Loans to equity accounted investments

       Amortised cost      13        13  
        

 

 

     

 

 

  

Total financial assets

            22,893        20,008  
        

 

 

     

 

 

  

Non-financial assets

            79,521        91,985  
        

 

 

     

 

 

  

Total assets

            102,414        111,993  
        

 

 

     

 

 

  

Current cross currency and interest rate swaps

    2    Fair value through profit or loss      –        121  

Current other derivative contracts(3)

    2,3    Fair value through profit or loss      19        17  

Non-current cross currency and interest rate swaps

    2    Fair value through profit or loss      1,255        1,092  

Non-current other derivative contracts(3)

    2,3    Fair value through profit or loss      1        1  
        

 

 

     

 

 

  

Total other financial liabilities

            1,275        1,231  

Trade and other payables(7)

       Amortised cost      5,094        5,414  

Provisionally priced trade payables(7)

    2    Fair value through profit or loss      403        377  

Bank overdrafts and short-term borrowings(8)

       Amortised cost      476        58  

Bank loans(8)

       Amortised cost      2,502        2,555  

Notes and debentures(8)

       Amortised cost      21,714        23,298  

Finance leases

       Amortised cost      749        802  

Other(8)

       Amortised cost      24        92  
        

 

 

     

 

 

  

Total financial liabilities

            32,237        33,827  
        

 

 

     

 

 

  

Non-financial liabilities

            14,861        17,496  
        

 

 

     

 

 

  

Total liabilities

            47,098        51,323  
        

 

 

     

 

 

  

 

(1)

For classifications under IAS 39 refer to note 2 Impact of new accounting standards.
(2)

All of the Group’s financial assets and financial liabilities recognised at fair value were valued using market observable inputs categorised as Level 2 with the exception of the specified items in the following footnotes.
(3)

Includes other derivative contracts of US$202 million (30 June 2018: US$213 million) categorised as Level 3. Significant items are derivatives embedded in physical commodity purchase and sales contracts of gas in Trinidad and Tobago with net assets fair value of US$205 million (30 June 2018: US$216 million).
(4)

Includes investments held by BHP Foundation which are restricted and not available for general use by the Group of US$298 million (30 June 2018: US$343 million) of which other investments (US Treasury Notes) of US$94 million categorised as Level 1 (30 June 2018: US$108 million).
(5)

Includes other investments of US$47 million (30 June 2018: US$47 million) categorised as Level 3.
(6)

Excludes input taxes of US$395 million (30 June 2018: US$338 million) included in other receivables.
(7)

Excludes input taxes of US$123 million (30 June 2018: US$189 million) included in other payables.
(8)

All interest bearing liabilities, excluding finance leases, are unsecured.