BP 2008 Annual Report Download - page 147

BP Annual Report and Accounts 2008
Notes on financial statements
28. Financial instruments and financial risk factors continued
Notwithstanding the processes described above, significant unexpected credit losses can occasionally occur. Exposure to unexpected losses
increases with concentrations of credit risk that exist when a number of counterparties are involved in similar activities or operate in the same industry
sector or geographical area, which may result in their ability to meet contractual obligations being impacted by changes in economic, political or other
conditions. The group’s principal customers, suppliers and financial institutions with which it conducts business are located throughout the world. In
addition, these risks are managed by maintaining a group watchlist and aggregating multi-segment exposures to ensure that a material credit risk
is not missed.
Reports are regularly prepared and presented to the GFRC that cover the group’s overall credit exposure and expected loss trends, exposure
by segment, and overall quality of the portfolio. The reports also include details of the largest counterparties by exposure level and expected loss,
and details of counterparties on the group watchlist.
It is estimated that over 80% (2007 80%) of the counterparties to the contracts comprising the derivative financial instruments in an asset
position are of investment grade credit quality.
Trade and other receivables of the group are analysed in the table below. By comparing the BP credit ratings to the equivalent external credit
ratings, it is estimated that approximately 60-65% (2007 65-70%) of the trade receivables portfolio exposure are of investment grade quality. With
respect to the trade and other receivables that are neither impaired nor past due, there are no indications as of the reporting date that the debtors will
not meet their payment obligations.
The group does not typically renegotiate the terms of trade receivables; however, if a renegotiation does take place, the outstanding balance is
included in the analysis based on the original payment terms. There were no significant renegotiated balances outstanding at 31 December 2008 or
31 December 2007.
$ million
Trade and other receivables at 31 December 2008 2007
Neither impaired nor past due 25,838 35,167
Impaired (net of valuation allowance) 73 145
Not impaired and past due in the following periods
within 30 days 1,323 2,350
31 to 60 days 489 273
61 to 90 days 596 311
over 90 days 1,170 464
29,489 38,710
The movement in the valuation allowance for trade receivables is set out below.
$ million
2008 2007
At 1 January 406 421
Exchange adjustments (32) 34
Charge for the year 191 175
Utilization (174) (224)
At 31 December 391 406
(c) Liquidity risk
Liquidity risk is the risk that suitable sources of funding for the group’s business activities may not be available. The group’s liquidity is managed
centrally with operating units forecasting their cash and currency requirements to the central treasury function. Unless restricted by local regulations,
subsidiaries pool their cash surpluses to treasury, which will then arrange to fund other subsidiaries’ requirements, or invest any net surplus in the
market or arrange for necessary external borrowings, while managing the group’s overall net currency positions.
In managing its liquidity risk, the group has access to a wide range of funding at competitive rates through capital markets and banks. The
group’s treasury function centrally co-ordinates relationships with banks, borrowing requirements, foreign exchange requirements and cash
management. The group believes it has access to sufficient funding through the commercial paper markets and by using undrawn committed
borrowing facilities to meet foreseeable borrowing requirements. At 31 December 2008, the group had substantial amounts of undrawn borrowing
facilities available, including committed facilities of $4,950 million, of which $4,550 million are in place until at least the fourth quarter of 2011 (2007
$4,950 million, of which $4,550 million are in place until at least the fourth quarter of 2011). These facilities are with a number of international banks
and borrowings under them would be at pre-agreed rates.
The group has in place a European Debt Issuance Programme (DIP) under which the group may raise $20 billion of debt for maturities of one
month or longer. At 31 December 2008, the amount drawn down against the DIP was $10,334 million (2007 $10,438 million). In addition, the group
has in place a US Shelf Registration under which it may raise $10 billion of debt with maturities of one month or longer. At 31 December 2008, the
amount drawn down under the US Shelf was $6,500 million (2007 $2,500 million).
The group has long-term debt ratings of Aa1 (stable outlook) and AA (stable outlook), (2007 Aa1 (stable outlook) and AA+ (negative outlook))
assigned respectively by Moody’s and Standard and Poor’s.
Despite current uncertainty in the financial market including a lack of liquidity for some borrowers, we have been able to issue $5 billion of
long-term debt in the fourth quarter of 2008. In addition, we have been able to issue short-term commercial paper at competitive rates. In the context
of unforeseen market volatility, we have however, increased the cash and cash equivalents held by the group to $8.2 billion at the end of 2008
compared with $3.6 billion at the end of 2007.
The amounts shown for finance debt in the table below include expected interest payments on borrowings and the future minimum lease
payments with respect to finance leases.
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