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Net debt

12 Months Ended

Jun. 30, 2023

21 Net debt

The Group seeks to maintain a strong balance sheet and deploys its capital with reference to the Capital Allocation Framework.

The Group monitors capital using the net debt balance and the gearing ratio, being the ratio of net debt to net debt plus net assets.

The net debt definition includes the fair value of derivative financial instruments used to hedge cash and borrowings which reflects the Group’s risk management strategy of reducing the volatility of net debt caused by fluctuations in foreign exchange and interest rates.

Under IFRS 16/AASB16 ‘Leases’, vessel lease contracts are required to be remeasured at each reporting date to the prevailing freight index. While these liabilities are included in the Group interest bearing liabilities, they are excluded from the net debt calculation as they do not align with how the Group assesses net debt for decision making in relation to the Capital Allocation Framework. In addition, the freight index has historically been volatile which creates significant short-term fluctuation in these liabilities.


	2023						2022
US$M	Current			Non-current			Current			Non-current
Interest bearing liabilities
Bank loans		5,310			2,192			397			2,075
Notes and debentures		1,337			10,482			1,690			9,673
Lease liabilities		521			2,498			519			2,057
Bank overdraft and short-term borrowings		5			–			–			–
Other		–			–			16			1

Total interest bearing liabilities		7,173			15,172			2,622			13,806

Less: Lease liability associated with index-linked freight contracts		114			173			113			161

Less: Cash and cash equivalents
Cash		7,206			–			5,728			–
Short-term deposits		5,222			–			11,508			–

Less: Total cash and cash equivalents		12,428			–			17,236			–

Less: Derivatives included in net debt
Net debt management related instruments 1		(113	)		(1,459	)		(358	)		(1,330	)
Net cash management related instruments 2		36			–			273			–

Less: Total derivatives included in net debt		(77	)		(1,459	)		(85	)		(1,330	)

Net debt					11,166						333

Net assets					48,530						48,766

Gearing					18.7	%					0.7	%

1	Represents the net cross currency and interest rate swaps designated as effective hedging instruments included within current and non-current other financial assets and liabilities.

2	Represents the net forward exchange contracts included within current and non-current other financial assets and liabilities.

Cash and short-term deposits are disclosed in the cash flow statement net of bank overdrafts and interest bearing liabilities at call.


	2023			2022		2021
	US$M			US$M		US$M
Total cash and cash equivalents		12,428			17,236		15,246
Bank overdrafts and short-term borrowings		(5	)		–		–

Total cash and cash equivalents, net of overdrafts		12,423			17,236		15,246

Cash and cash equivalents includes US$95 million (2022: US$127 million) restricted by legal or contractual arrangements.

Recognition and measurement

Cash and short-term deposits in the balance sheet comprise cash at bank and on hand and highly liquid cash deposits with short-term maturities that are readily convertible to known amounts of cash with insignificant risk of change in value. The Group considers that the carrying value of cash and cash equivalents approximate fair value due to their short-term to maturity. Refer to note 22 ‘Leases’ and note 24 ‘Financial risk management’ for the recognition and measurement principles for lease liabilities and other financial liabilities.

Interest bearing liabilities and cash and cash equivalents include balances denominated in the following currencies:


	Interest bearing liabilities				Cash and cash equivalents
	2023		2022		2023		2022
	US$M		US$M		US$M		US$M
USD		16,289		8,813		5,925		7,654
EUR		3,050		3,463		544		2,656
GBP		1,587		2,621		674		30
AUD		1,233		783		1,797		3,360
CAD		7		584		3,362		3,437
Other		179		164		126		99

Total		22,345		16,428		12,428		17,236

The Group enters into derivative transactions to convert the majority of its exposures above into US dollars. Further information on the Group’s risk management activities relating to these balances is provided in note 24 ‘Financial risk management’.

Liquidity risk

The Group’s liquidity risk arises from the possibility that it may not be able to settle or meet its obligations as they fall due and is managed as part of the portfolio risk management strategy. Operational, capital and regulatory requirements are considered in the management of liquidity risk, in conjunction with short-term and long-term forecast information.

Recognising the cyclical volatility of operating cash flows, the Group has defined minimum target cash and liquidity buffers to be maintained to mitigate liquidity risk and support operations through the cycle.

The Group’s strong credit profile, diversified funding sources, its minimum cash buffer and its committed credit facilities ensure that sufficient liquid funds are maintained to meet its daily cash requirements.

The Group’s Moody’s credit rating changed from A2/P-1 to A1/P-1 outlook stable (long-term/short-term). The Group’s Standard & Poor’s rating has remained at A-/A-1 outlook stable (long-term/short-term).

There were no defaults on the Group’s liabilities during the period.

Counterparty risk

The Group is exposed to credit risk from its financing activities, including short-term cash investments such as deposits with banks and derivative contracts. This risk is managed by Group Treasury in line with the counterparty risk framework, which aims to minimise the exposure to a counterparty and mitigate the risk of financial loss through counterparty failure.

Exposure to counterparties is monitored at a Group level across all products and includes exposure with derivatives and cash investments.

Investments and derivatives are only transacted with approved counterparties who have been assigned specific limits based on a quantitative credit risk model. These limits are updated at least bi-annually. Additionally, derivatives are subject to tenor limits and investments are subject to concentration limits by rating.

Derivative fair values are inclusive of valuation adjustments that take into account both the counterparty and the Group’s risk of default.

Standby arrangements and unused credit facilities

The Group’s committed revolving credit facility operates as a back-stop to the Group’s uncommitted commercial paper program. The combined amount drawn under the facility or as commercial paper will not exceed US$5.5 billion. As at 30 June 2023, US$ nil commercial paper was drawn (2022: US$ nil). The facility is due to mature on 10 October 2026. A commitment fee is payable on the undrawn balance and interest is payable on any drawn balance comprising a reference rate plus a margin. The agreed margins are typical for a credit facility extended to a company with the Group’s credit rating.

Maturity profile of financial liabilities

The maturity profile of the Group’s financial liabilities based on the undiscounted contractual amounts, taking into account the derivatives related to debt, is as follows:


2023 US$M	Bank loans, debentures and other loans		Expected future interest payments		Derivatives related to debentures		Other derivatives		Obligations under lease liabilities		Trade and other payables 1		Total
Due for payment:
In one year or less or on demand		6,659		757		536		257		658		6,175		15,042
In more than one year but not more than two years		1,399		595		388		126		538		4		3,050
In more than two years but not more than five years		4,058		1,410		399		267		1,031		–		7,165
In more than five years		8,093		3,693		1,020		211		1,846		–		14,863

Total		20,209		6,455		2,343		861		4,073		6,179		40,120

Carrying amount		19,326		–		1,755		804		3,019		6,179		31,083


2022 US$M	Bank loans, debentures and other loans		Expected future interest payments		Derivatives related to debentures		Other derivatives		Obligations under lease liabilities		Trade and other payables 1		Total
Due for payment:
In one year or less or on demand		2,109		492		525		221		579		6,608		10,534
In more than one year but not more than two years		1,634		427		300		112		443		–		2,916
In more than two years but not more than five years		2,609		1,032		492		246		936		–		5,315
In more than five years		7,550		3,705		1,467		245		1,470		–		14,437

Total		13,902		5,656		2,784		824		3,428		6,608		33,202

Carrying amount		13,852		–		1,824		752		2,576		6,608		25,612

1	Excludes input taxes of US$121 million (2022: US$79 million) included in other payables. Refer to note 9 ‘Trade and other payables’.