10th May 2005 07:01
BG GROUP plc10 May 2005 BG GROUP PLC2005 FIRST QUARTER RESULTS HIGHLIGHTS First Quarter 2005 2004Business Performance(i) £m £m Turnover and other operating income 1 094 856 +28% Total operating profit including share ofresults from joint ventures and associates 483 336 +44% Earnings 270 187 +44% Earnings per share 7.6p 5.3p +43% • Earnings up by £83 million (44%)• At constant US$/UK£ exchange rates and upstream prices(ii), total operating profit would have increased by 21%• Sale of BG Group's interest in the North Caspian Sea PSA completed on 6 April 2005• First gas from Simian Sienna and Rosetta Phase 2 in Egypt• First cargo from ELNG Train 1 due end May• Manatee discovery in Trinidad indicated gross reserves of between 1.3 and 1.6 tcf gas Results for the period includingnon-operating 2005 2004items(i) £m £mTurnover and other operating income 1 056 856 +23% Operating profit before share of results from joint ventures and associates 406 311 +31% Total operating profit including share of results from joint ventures andassociates 458 358 +28%Earnings 260 207 +26%Earnings per share 7.3p 5.9p +24% BG Group's Chief Executive Frank Chapman said: "BG has made an excellent start to the year. The 44% increase in total operatingprofit has been driven by strong underlying growth. In addition, we havecontinued to make good progress on the delivery of key projects, including theSimian Sienna and Sapphire fields and Egyptian LNG, where we expect Train 1 tobecome operational in the second quarter, three months ahead of schedule". i) For further explanation of Business Performance and the presentation of results from joint ventures and associates see Transition to IFRS reporting, page 2, and Presentation of Non-GAAP measures, page 9.ii) For an explanation of results at constant US$/UK£ exchange rates and upstream prices see Presentation of Non-GAAP measures, page 9. TRANSITION TO IFRS REPORTING The presentation of BG Group's results under IFRS separately identifies theeffect of: • The re-measurement of financial instruments (including derivatives) under IAS 39; and • Profits and losses on the disposal of non-current assets and businesses. These items are excluded from Business Performance in order to provide readerswith a clear and consistent presentation of the underlying operating performanceof the Group's ongoing businesses. Under IFRS the results of joint ventures and associates are presented net offinance costs and tax. Given the relevance of these businesses within BG Groupthe results of joint ventures and associates are presented both before interestand tax, and after tax. The pre-interest and tax result is included in BusinessPerformance discussed on pages 3 to 8. The tables below set out the amountsrelated to joint ventures and associates, re-measurements under IAS 39 andprofits on disposal of non-current assets and businesses. First Quarter 2005 2004 £m £mOperating profit for the period before share of results fromjoint ventures and associates 406 311Share of pre-tax operating results from joint ventures andassociates 52 47Operating profit for the period including share of pre-taxresults from joint ventures and associates 458 358Non-operating items:Re-measurements - IAS 39(i) 38 -Profit on disposal (13) (22)Business Performance - Total operating profit for the period 483 336 First Quarter 2005 2004 £m £mEarnings for the period - including non-operating items 260 207Non-operating items - before interest and tax 25 (22)Non-operating items - interest (2) -Tax and minority interest on non-operating items (13) 2Earnings - excluding non-operating items 270 187 i) Non-operating items excluded from Business Performance The IAS 39 re-measurements reflect movements in external market prices.Derivative instruments include certain long-term UK gas contracts which areclassified as derivatives under IAS 39 due to the nature of the contract termsand are therefore required to be marked-to-market. This treatment has no impacton the ongoing cashflows of the business and management believes theseunrealised mark-to-market movements are best presented separately fromunderlying business performance. BUSINESS REVIEW The results discussed in this Business Review (pages 3 to 8) relate to BGGroup's performance excluding non-operating items. For the impact and adescription of these items, see the consolidated income statement (page 12) andNote 2 of the accounts (page 18). Results at constant US$/UK£ exchange rates andupstream prices are also quoted. See Presentation of Non-GAAP measures (page 9)for an explanation of these metrics. GROUP Business Performance First Quarter 2005 2004 £m £m Turnover and other operating income 1 094 856 +28% Total operating profit including share of results from joint ventures and associates Exploration and Production 387 264 +47% Liquefied Natural Gas 27 15 +80% Transmission and Distribution 46 30 +53% Power Generation 36 37 -3% Other activities (13) (10) +30% 483 336 +44% Net finance costs (18) (16) +13% Taxation (187) (128) +46% Earnings 270 187 +44% Earnings per share 7.6p 5.3p +43% Capital investment 315 627 -50% Capital investment excluding acquisitions 315 367 -14% The Group delivered strong earnings growth (up 44% to £270 million), despite theeffect of the weaker US Dollar. Total operating profit increased by 44% to £483 million reflecting higher E&Pvolumes and prices together with strong performances from the LNG and T&Dsegments. Net finance costs were higher primarily due to interest payments on leasedships. The effective tax rate (including BG Group share of joint ventures andassociates) was unchanged at 40%. Cash generated by operations increased by £175 million to £549 million,primarily due to higher operating profit. As at 31 March 2005, net borrowingswere £905 million, whilst gearing was 15.3% (31 December 2004: 17.9%). Capital investment in the quarter of £315 million was in the Mediterranean Basinand Africa (£87 million), Asia and the Middle East (£81 million), North Americaand the Caribbean (£64 million), North West Europe (£59 million) and SouthAmerica (£24 million). Capital investment included £60 million in relation tothe North Caspian Sea PSA which was reimbursed on completion of the sale afterthe end of the quarter. On 6 April 2005, BG Group announced that it had completed the sale of its 16.67%interest in the North Caspian Sea PSA and had received an aggregate pre-tax cashconsideration of approximately $1.8 billion. Cash proceeds after tax anddisposal costs are expected to be approximately $1.5 billion. EXPLORATION AND PRODUCTION Business Performance First Quarter 2005 2004 £m £m Production volumes (mmboe) 43.7 40.9 +7%Turnover and other operating income 635 476 +33% Total operating profit 387 264 +47% Average realised oil price per barrel £25.35 £17.88 +42% ($48.24) ($32.56) +48% Average realised liquids price per barrel £17.35 £8.93 +94% ($33.01) ($16.27) +103% Average realised gas price per produced therm 17.48p 15.97p +9% Lifting costs per boe £1.15 £0.88 +31% ($2.18) ($1.60) +36% Operating expenditure per boe £2.08 £1.80 +16% ($3.96) ($3.28) +21%Capital investment 245 447 -45%Capital investment excluding acquisitions 245 187 +31% Lifting costs are defined as operating expenditure excluding royalties, tariffsand insurance. Additional operating and financial data are given on page 26. E&P operating profit increased by 47% to £387 million due to higher volumes andprices, partially offset by a higher exploration charge and the effect of theweaker US Dollar. At constant US$/UK£ exchange rates and prices, E&P operatingprofit increased by 17%. Production volumes increased by 7%, primarily due to the export of liquids fromthe Karachaganak field, increased production from the Scarab Saffron fields andproduction from the acquired Canadian and Egyptian properties. The averagerealised gas price per produced therm was up 9% principally due to favourablemix. The exploration charge of £25 million is £9 million higher than 2004 mainly dueto an increase in well write-off expense. Unit operating expenditure was up 28 pence due to higher lifting costs androyalties. This reflects higher commodity prices and the mix effect of Canadianand Karachaganak export production. Capital investment of £245 million included expenditure in Kazakhstan (£67million), Egypt (£55 million) and North West Europe (£49 million). On 15 April 2005, first gas was produced from the Simian Sienna fields forsupply to Egyptian LNG Train 1 (ELNG Train 1). Also on 15 April, BG Group andpartners delivered first gas from Rosetta Phase 2 to the Egyptian domesticmarket. Further assessment of the Manatee discovery in Trinidad (BG Group 50%) indicatesgross reserves of between 1.3 and 1.6 tcf of gas. This, together with additionalreserves in BG Group-operated properties elsewhere in the country, gives BGGroup and its Partners over 3.0 tcf of gross uncommitted reserves in Trinidad.Discussions to commercialise these reserves are ongoing. Since the start of the year, BG Group has completed 11 exploration and appraisalwells of which 8 have been successful (73%). In Canada, BG Group has successfully completed its first drilling campaign sinceacquisition. The 2004/05 programme ended with 9 successful exploration wells outof the 13 drilled, with a further well under evaluation. On 8 April 2005, BG Group farmed into two exploration permits in the offshoreBrowse Basin, Western Australia. LIQUEFIED NATURAL GAS Business Performance First Quarter 2005 2004 £m £m Turnover and other operating income 220 190 +16% Total operating profitShipping and marketing 15 6 +150%Atlantic LNG 21 14 +50%Other including business development (9) (5) +80% 27 15 +80% Capital investment 45 164 -73% The £30 million increase in turnover and other operating income reflects highervolumes in the LNG shipping and marketing business, including 9 cargoes (2004: 1cargo) redirected to markets outside of the US. Total operating profit was up 80% to £27 million reflecting the increasedactivity in the LNG shipping and marketing business and strong volume growthacross all trains at Atlantic LNG, partially offset by the impact of the weakerUS Dollar. Prior year results at Atlantic LNG were adversely impacted byindustrial action. Capital investment includes £25 million relating to three LNG vessels inconstruction due for delivery in 2006 and continuing investment in Egyptian LNGTrain 2 (ELNG Train 2) and Atlantic LNG Train 4. On 14 March 2005, BG Group took delivery of the first LNG cargo from Egypt'sDamietta LNG plant, produced from gas from the Scarab Saffron fields. The first pre-commissioning cargo from ELNG Train 1 is expected to be liftedtowards the end of this month. The first post-commissioning cargo from ELNGTrain 1 is on schedule to be delivered early in July 2005. ELNG Train 2 remainson schedule for a fourth quarter 2005 start-up. In April 2005, BG Group, the National Nigerian Petroleum Corporation, ChevronTexaco and Shell signed a Memorandum of Understanding to study the feasibilityof a 20 mtpa LNG project at Olokola, Western Nigeria. TRANSMISSION AND DISTRIBUTION Business Performance First Quarter 2005 2004 £m £mTurnover and other operating incomeComgas 107 88 +22%MetroGAS 34 26 +31%Other 28 25 +12% 169 139 +22% Total operating profitComgas 29 21 +38%MetroGAS 4 1 +300%Other 13 8 +63% 46 30 +53% Capital investment 17 13 +31% Volumes continued to grow strongly across the segment, driving turnover growthof 22%. At Comgas in Brazil, volumes rose by 14%, underpinning a £8 million increase inoperating profit to £29 million. The increase in operating profit included a £4million benefit from lower gas costs, which is expected to be passed back tocustomers through lower tariffs from the second half of the year. MetroGAS reported an operating profit of £4 million (2004: £1 million), due tohigher volumes sold to power generation customers. The capital restructuring ofMetroGAS and GASA continues to make progress. Capital investment mainly represents the development of the Comgas pipelinenetwork. POWER GENERATION Business Performance First Quarter 2005 2004 £m £m Turnover and other operating income 75 54 +39% Total operating profit 36 37 -3% Capital investment - - - The increase in turnover is primarily due to pass-through of gas costs.Operating profit was broadly in line with the same period last year. PRESENTATION OF NON-GAAP MEASURES AND DEFINITIONS Presentation of Non-GAAP measures Business Performance 'Business Performance' excludes certain non-operating items (see below) and ispresented as management believes that exclusion of these items provides readerswith a clear and consistent presentation of the underlying operating performanceof the Group's ongoing business. Non-operating items BG Group's commercial arrangements for marketing gas include the use oflong-term gas sales contracts. Certain UK gas sales contracts are classified asderivatives under the rules of IAS 39 and are required to be measured at fairvalue at the balance sheet date. Unrealised gains or losses on these contractsreflect the comparison between current market gas prices and the actual pricesrealised under the gas sales contract. BG Group also uses commodity derivativeinstruments to manage certain price exposures in respect of optimising thetiming of its gas sales, including the use of gas in storage facilities. Theseinstruments are also required to be measured at fair value at the balance sheetdate under IAS 39. BG Group uses financial instruments, including derivatives, to manage foreignexchange and interest rate exposure. These instruments are required to berecognised at fair value or amortised cost on the balance sheet in accordancewith IAS 39. Most of these instruments have been designated either as hedges offoreign exchange movements associated with the Group's net investments inforeign operations, or as hedges of interest rate risk. Where these instrumentscannot be designated as hedges under IAS 39, unrealised movements in fair valueare recorded in the income statement. Unrealised gains and losses in respect of long-term gas sales contracts andother financial instruments are disclosed separately as 'non-operating items'.Realised gains and losses relating to these instruments are included in BusinessPerformance. Management considers that this presentation best reflects theunderlying performance of the business since it distinguishes between thetemporary timing differences associated with re-measurements under IAS 39 rulesand actual realised gains and losses. For a reconciliation between the overall results and Business Performance anddetails of non-operating items, see the consolidated income statement, page 12and Note 2 to the accounts, page 18. Profits or losses on disposal of non-current assets or businesses are treated asnon-operating items. Joint ventures and associates Under IFRS the results from jointly controlled entities (joint ventures) andassociates, accounted for under the equity method, are required to be presentednet of finance costs and tax on the face of the income statement. Given therelevance of these businesses within BG Group, the results of joint ventures andassociates are presented before interest and tax, and after tax. Managementconsiders that this approach aids comparability with prior year results andprovides additional information on the source of BG Group's operating profits.For a reconciliation between operating profit and earnings including andexcluding the results of joint ventures and associates see Note 3 to theaccounts, page 19. Exchange rates and prices BG Group also discloses certain information, as indicated, at constant US$/UK£exchange rates and upstream prices. The presentation of results in this manneris intended to provide additional information to explain further the underlyingtrends in the business. Definitions In these results: bcf billion cubic feetbcfd billion cubic feet per daybcmpa billion cubic metres per annumboe barrels of oil equivalentboed barrels of oil equivalent per daybopd barrels of oil per dayCCGT combined cycle gas turbineDCQ daily contracted quantityE&P Exploration and ProductionEPC engineering, procurement and constructionEPIC engineering, procurement, installation and commissioningFEED front end engineering designGearing Net borrowings as a percentage of total shareholders' funds (excluding the re-measurement of commodity financial instruments) plus net borrowingsGW gigawattIAS 39 International Accounting Standard 39 (Financial Instruments)IFRS International Financial Reporting StandardsLNG Liquefied Natural Gasm millionmmboe million barrels of oil equivalentmmcfd million cubic feet per daymmcmd million cubic metres per daymmscfd million standard cubic feet per daymmscm million standard cubic metresmmscmd million standard cubic metres per daymtpa million tonnes per annumMW megawattNet Comprise cash, current asset investments, finance leases, currencyborrowings and interest rate derivative financial instruments and short- and long-term borrowingsROACE return on average capital employedT&D Transmission and DistributionTotal Group operating profit plus share of pre-tax operating results ofoperating joint ventures and associatesprofitPSA production sharing agreementUKCS United Kingdom Continental Shelf LEGAL NOTICE These results include "forward-looking information" within the meaning ofSection 27A of the US Securities Act of 1933, as amended and Section 21E of theUS Securities Exchange Act of 1934, as amended. Certain statements included inthese results, including without limitation, those concerning (i) strategies,outlook and growth opportunities, (ii) positioning to deliver future plans andto realise potential for growth, (iii) delivery of the performance required toachieve the 2006 targets, (iv) development of new markets, (v) the developmentand commencement of commercial operations of new projects, (vi) liquidity andcapital resources, (vii) plans for capital and investment expenditure and (viii)statements preceded by "expected", "scheduled", "targeted", "planned","proposed", "intended" or similar statements, contain certain forward-lookingstatements concerning operations, economic performance and financial condition.Although the Company believes that the expectations reflected in suchforward-looking statements are reasonable, no assurance can be given that suchexpectations will prove to have been correct. Accordingly, results could differmaterially from those set out in the forward-looking statements as a result of,among other factors, (i) changes in economic, market and competitive conditions,including oil and gas prices, (ii) success in implementing business andoperating initiatives, (iii) changes in the regulatory environment and othergovernment actions, including UK and international corporation tax rates, (iv) amajor recession or significant upheaval in the major markets in which BG Groupoperates, (v) the failure to ensure the safe operation of assets worldwide, (vi)implementation risk, being the challenges associated with delivering capitalintensive projects on time and on budget, including the need to retain andmotivate staff, (vii) commodity risk, being the risk of a significantfluctuation in oil and/or gas prices from those assumed, (viii) fluctuations inexchange rates, in particular the US$/UK£ exchange rate being significantlydifferent to that assumed, (ix) risks encountered in the gas and oil explorationand production sector in general, (x) business risk management and (xi) the RiskFactors included in BG Group's Annual Report and Accounts 2004. BG Groupundertakes no obligation to update any forward-looking statements.No part of these results constitutes or shall be taken to constitute aninvitation or inducement to invest in BG Group plc or any other entity and mustnot be relied upon in any way in connection with any investment decision.Cautionary note to US investors - The United States Securities and ExchangeCommission permits oil and gas companies, in their filings with the SEC, todisclose only proved reserves that a company has demonstrated by actualproduction or conclusive formation tests to be economically and legallyproducible under existing economic and operating conditions. We use certainterms in this press release, such as "indicated gross reserves", "additionalreserves" and "gross uncommitted reserves" that the SEC's guidelines strictlyprohibit us from including in filings with the SEC. US investors are urged toconsider closely the disclosure in our Form 20-F, File No. 1-09337, availablefrom us at BG Group, 100 Thames Valley Park Drive, Reading RG6 1PT. You may readand copy this information at the SEC's public reference room, located at 450Fifth Street NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330for further information on the public reference room. This filing is alsoavailable at the internet website maintained by SEC at http://www.sec.gov. CONSOLIDATED INCOME STATEMENT FIRST QUARTER --------------------------------- ------------------------------------ 2005 2004 Busi- Non- Total Busi- Non- Total ness operating ness operating Perfor- items Perfor- items mance (Note 2) mance (Note 2) Notes £m £m £m £m £m £m Group turnoverand otheroperatingincome 3 1 094 (38) 1 056 856 - 856Operatingcosts (663) - (663) (567) - (567)Profit ondisposal ofnon-currentassets(i) - 13 13 - 22 22 ------- -------- ------- ------- -------- --------Operatingprofit/(loss)before shareof resultsfrom jointventures andassociates 3 431 (25) 406 289 22 311 ------- -------- ------- ------- -------- --------Finance income 11 - 11 11 - 11Finance costs 4 (20) 2 (18) (18) - (18)Share ofpost-taxresults fromjoint venturesand associates 39 - 39 31 - 31 ------- -------- ------- ------- -------- --------Profit/(loss)before tax 461 (23) 438 313 22 335Taxation 5 (183) 16 (167) (121) (2) (123) ------- -------- ------- ------- -------- --------Profit/(loss)for the period 278 (7) 271 192 20 212 ------- -------- ------- ------- -------- --------Attributable to: ------- -------- ------- ------- -------- --------BGshareholders 270 (10) 260 187 20 207Minorityinterest 8 3 11 5 - 5 ------- -------- ------- ------- -------- -------- 278 (7) 271 192 20 212 ------- -------- ------- ------- -------- --------Earnings pershare - basic 6 7.6p (0.3p) 7.3p 5.3p 0.6p 5.9pEarnings pershare -diluted 6 7.6p (0.3p) 7.3p 5.3p 0.6p 5.9p ------- -------- ------- ------- -------- -------- --------------------------------------------------------------------------------------------------Totaloperatingprofitincludingshare ofresults fromjoint venturesandassociates(ii) 3 483 (25) 458 336 22 358-------------------------------------------------------------------------------------------------- i) See Presentation of Non-GAAP measures, page 9, for an explanation of results excluding non-operating items and presentation of the results of joint ventures and associates.ii)This measurement is shown by BG Group as it is used by management as a means of measuring the underlying performance of the business. CONSOLIDATED BALANCE SHEET As at 31 Mar 31 Dec 2005 2004 £m £mAssetsNon-current assetsGoodwill 272 272Intangible assets 601 585Property, plant and equipment 4 697 4 509Investments accounted for using equity method 1 086 1 050Deferred tax assets 69 68Trade and other receivables 48 46Derivative financial instruments 142 --------------------------------------------------- ------- ------- 6 915 6 530Current assetsInventories 85 99Trade and other receivables 1 224 1 190Commodity contracts and other derivative financialinstruments 26 -Cash and cash equivalents 245 340-------------------------------------------------- ------- ------- 1 580 1 629Non-current assets classified as held for sale 581 530-------------------------------------------------- ------- -------Total assets 9 076 8 689-------------------------------------------------- ------- -------LiabilitiesCurrent liabilitiesBorrowings (374) (577)Trade and other payables (1 049) (976)Current income tax liabilities (260) (264)Commodity contracts and other derivative financialinstruments (458) --------------------------------------------------- ------- ------- (2 141) (1 817)Non-current liabilitiesBorrowings (913) (762)Trade and other payables (87) (89)Deferred income tax liabilities (787) (907)Retirement benefit obligations (139) (135)Provisions for other liabilities and charges (334) (325)-------------------------------------------------- ------- ------- (2 260) (2 218)Liabilities associated with non-current assetsclassified as held for sale (74) (67)-------------------------------------------------- ------- -------Total liabilities (4 475) (4 102)-------------------------------------------------- ------- -------Net assets 4 601 4 587-------------------------------------------------- ------- -------Attributable to:Equity shareholders 4 573 4 567Minority interests 28 20-------------------------------------------------- ------- -------Total equity 4 601 4 587-------------------------------------------------- ------- ------- STATEMENT OF CHANGES IN EQUITY First Quarter 2005 2004 £m £mEquity as at 31 December 2004 and 2003BG Group shareholders' funds 4 567 3 924Minority interest 20 (9)------------------------------------------------- ------- ------- 4 587 3 915 Effect of adoption of IAS 39 (238) -------------------------------------------------- ------- -------Equity as at 1 January 2005 and 2004 4 349 3 915 Profit for the financial period 271 212Issue of shares 8 5Adjustment in respect of employee share schemes 3 -Dividend on ordinary shares (74) (66)Currency translation and hedge adjustments 44 (45)------------------------------------------------- ------- -------Net changes in equity for the financial period 252 106 Equity as at 31 MarchBG Group shareholders' funds 4 573 4 020Minority interest 28 1------------------------------------------------- ------- ------- 4 601 4 021------------------------------------------------- ------- ------- CONSOLIDATED CASH FLOW STATEMENT First Quarter 2005 2004 £m £mCash flows from operating activitiesProfit from operations 406 311Depreciation of property, plant and equipment 115 111Fair value movements in commodity contracts 37 -Profit on disposal of non-current assets (13) (22)Unsuccessful exploration expenditure written off 10 3Increase in provisions 8 2Share based payments 3 -Increase in working capital (17) (31)------------------------------------------------- ------- -------Cash generated by operations 549 374Income taxes paid (143) (76)------------------------------------------------- ------- -------Net cash inflow from operating activities 406 298------------------------------------------------- ------- -------Cash flows from investing activities Dividends received from joint ventures and associates 12 5Proceeds from disposal of subsidiary undertakingsand investments 26 32Purchase of property, plant and equipment andintangible assets (290) (215)Loans to joint ventures and associates (9) (69)Purchase of subsidiary undertakings and investments - (250)------------------------------------------------- ------- -------Net cash outflow from investing activities (261) (497)------------------------------------------------- ------- -------Cash flows from financing activitiesNet interest paid(i) (12) (4)Net (decrease)/increase in short-term borrowings (257) 145Net increase in long-term borrowings 1 3Issue of shares 8 5------------------------------------------------- ------- -------Net cash (outflow)/inflow from financing activities (260) 149------------------------------------------------- ------- -------Net decrease in cash and cash equivalents (115) (50)Cash and cash equivalents at beginning of period 340 313Effect of foreign exchange rate changes 20 (3)------------------------------------------------- ------- -------Cash and cash equivalents at end of period(ii) 245 260------------------------------------------------- ------- ------- i) Includes capitalised interest for the first quarter of £3 million (2004 £2 million).ii) Cash and cash equivalents comprise cash and short-term liquid investments that are readily convertible to cash. RECONCILIATION OF NET BORROWINGS - FIRST QUARTER £mNet borrowings as at 31 December 2004 (999)Adoption of IAS 39 (6)--------------------------------------------------- --------- (1 005) Net decrease in cash and cash equivalents (115)Cash outflow from changes in gross borrowings 256Inception of finance leases (16)Foreign exchange and other re-measurements (25)--------------------------------------------------- ---------Net borrowings as at 31 March 2005 (905)--------------------------------------------------- --------- Net borrowings attributable to MetroGAS (including Gas Argentino) and Comgaswere £298 million (31December 2004 £300 million). The gearing ratio (net borrowings as a percentage of net borrowings plus equity)was 15.3% (31 December 2004 17.9%). As at 31 March 2005, BG Group's share of the net borrowings in joint venturesand associates amounted to approximately £1.0 billion, including BG Groupshareholder loans of approximately £610 million. These net borrowings areincluded in BG Group's share of the net assets in joint ventures and associateswhich are consolidated in BG Group's accounts. Notes 1. Basis of preparation These primary statements are the unaudited interim consolidated financialstatements of BG Group plc for the quarter ended 31 March 2005. The financialinformation does not comprise statutory accounts within the meaning of Section240 of the Companies Act 1985, and should be read in conjunction with the AnnualReport and Accounts for the year ended 31 December 2004, as they provide anupdate of previously reported information. From 1 January 2005, BG Group is required to prepare its consolidated financialstatements in accordance with International Financial Reporting Standards (IFRS)endorsed by the European Union. In the 2004 Annual Report and Accounts (pages110 to 118) information was provided in order to provide clarity on the impactof IFRS in advance of the publication of results under these standards. Itincluded details of BG Group's principal accounting policies under IFRS and theadjustments required to restate comparative information for the year ended 31December 2003 (including the transition balance sheet as at 1 January 2003) andthe year ended 31 December 2004. The financial information set out in thisinterim statement has been prepared in accordance with the accounting policiesunder IFRS published in the 2004 Annual Report and Accounts. Standards currently in issue and adopted by the EU are subject to interpretationissued from time to time by the International Financial ReportingInterpretations Committee (IFRIC). Further standards may be issued by theInternational Accounting Standards Board that will be adopted for financialyears beginning on or after 1 January 2005. Additionally, IFRS is currentlybeing applied in the United Kingdom and in a large number of countriessimultaneously for the first time. Furthermore, due to a number of new andrevised Standards included within the body of the Standards that comprise IFRS,there is not yet a significant body of established practice on which to draw informing options regarding interpretation and application. Accordingly, practiceis continuing to evolve. At this preliminary stage, therefore, the fullfinancial effect of reporting under IFRS as it will be applied and reported onin the Company's first IFRS Financial Statements for the year ended 31 December2005 may be subject to change. The preparation of the interim financial statements requires management to makeestimates and assumptions that affect the reported amount of revenues, expenses,assets and liabilities and disclosure of contingent liabilities at the date ofthe interim financial statements. If in the future such estimates andassumptions, which are based on management's best judgement at the date of theinterim financial statements, deviate from the actual circumstances, theoriginal estimates and assumptions will be modified as appropriate in the yearin which the circumstances change. Income tax expense is recognised based upon the best estimate of the weightedaverage annual income tax rate expected for the full financial year. 2. Non-operating items First Quarter 2005 2004 £m £m Profit on disposal of investments 13 22Turnover and other operating income - non-cashre-measurements of commodity contracts (38) -(i)Finance costs - non-cash re-measurements of financial instruments 2 -(i)Taxation 16 (2)Minority interest (3) -------------------------------------------------------- --------- ---------Impact on earnings (10) 20------------------------------------------------------- --------- --------- i) BG Group adopted IAS 39 from 1 January 2005 so figures for 2004 do not contain any non-cash re-measurements. 2005 first quarter: Turnover and other operating income Re-measurements included within turnover and other operating income amount to acharge of £38 million, £29 million of which represents unrealised mark-to-marketmovements on certain long-term UK gas contracts. Whilst the activity surroundingthese contracts involves the physical delivery of gas, the contracts fall withinthe scope of IAS 39 as they are considered to contain written options relatingto buyer flexibility.An additional £9 million charge represents unrealised mark-to-market movementson derivatives used for gas marketing activity in the UK and US. 2005 first quarter: Finance costs Re-measurements presented in finance costs relate primarily to the retranslationof MetroGAS US Dollar and Euro borrowings which cannot be designated as hedgesunder IAS 39. In addition there are movements in respect of certain derivativesused to hedge foreign exchange and interest rate risk which have not beendesignated as hedges under IAS 39, partly offset by foreign exchange movementson certain borrowings in a subsidiary. 2005 first quarter: Disposal of investment During the first quarter of 2005, BG Group disposed of its 50% interest inPremier Transmission Limited to Premier Transmission Financing Plc for cashproceeds of £26 million. No tax arose on the disposal. 2004 first quarter: Disposal of investment During the first quarter of 2004, BG Group disposed of its 1.21% holding ofshares in a listed company, Gas Authority of India Limited, for £32 million. Taxof £2 million arose on the profit on disposal, based on the effective rate ofcapital gains tax applicable in India for long-term investments. 3. Segmental analysis Group turnover and other operating income Busi- Non- Total Busi- Non- Total First Quarter ness oper- ness oper- Perfor- ating Perfor- ating mance items mance items 2005 2005 2005 2004 2004 2004 £m £m £m £m £m £m Explorationand Production 635 (34) 601 476 - 476LiquefiedNatural Gas 220 (4) 216 190 - 190TransmissionandDistribution 169 - 169 139 - 139PowerGeneration 75 - 75 54 - 54Otheractivities 2 - 2 1 - 1Less:intra-groupsales (7) - (7) (4) - (4)---------------------- -------- ------ ------ ------- ------ ------ 1 094 (38) 1 056 856 - 856---------------------- -------- ------ ------ ------- ------ ------ First Quarter Before share Share of Including Non-operating Business of results results in share of items(ii) Performance from joint joint results from (ii) ventures and ventures and joint associates associates(i) ventures and associates 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m £m £m Explorationand Production 353 264 - - 353 264 34 - 387 264LiquefiedNatural Gas 2 1 21 14 23 15 4 - 27 15TransmissionandDistribution 48 20 11 10 59 30 (13) - 46 30PowerGeneration 16 14 20 23 36 37 - - 36 37Otheractivities (13) 12 - - (13) 12 - (22) (13) (10)--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------OperatingProfit 406 311 52 47 458 358 25 (22) 483 336--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ i) Share of results in joint ventures and associates after finance costs and taxation is £39 million (2004 £31 million).ii) Business Performance excludes certain non-operating items. See Note 2, page 18 and Presentation of Non-GAAP measures, page 9. 4. Finance costs First Quarter 2005 2004 £m £m Interest payable (16) (17)Interest on obligations under finance leases (4) (1)Interest capitalised 3 2Unwinding of discount on provisions(i) (3) (2)Non-operating items (Note 2) 2 ------------------------------------------------- -------- --------Finance costs (18) (18)------------------------------------------------ -------- -------- i) Relates to the unwinding of the discount on provisions in respect of decommissioning and pension obligations, included in the income statement as a financial item within net finance costs. 5. Taxation - first quarter The taxation charge for the period before non-operating items was £183 million(2004 £121 million), and the taxation charge including non-operating items was£167 million(2004 £123 million). 6. Earnings per ordinary share Reconciliation of earnings and earnings per share including and excludingnon-operating items First Quarter 2005 2004-------------------------------------------- ------------ -------------- £m Pence £m Pence per per share share Earnings 260 7.3 207 5.9Non-operating items (after tax and minorityinterest) 23 0.7 - -Profit on disposals (13) (0.4) (20) (0.6)-------------------------------------------- ----- ------ ---- -----Earnings - excluding non-operating items 270 7.6 187 5.3-------------------------------------------- ----- ------ ---- ----- Earnings per share calculations in 2005 are based on shares in issue of 3 537million for the quarter. There is no material difference between the figures presented above and dilutedearnings per share. 7. Capital investment - geographical analysis First Quarter 2005 2004 £m £m North West Europe 59 28South America 24 17Asia and the Middle East 81 96North America and the Caribbean 64 306Mediterranean Basin and Africa 87 180----------------------------------- -------- -------- 315 627----------------------------------- -------- -------- 8. Quarterly information: earnings and earnings per share 2005 2004 2005 2004 £m £m pence pence First quarter- including non-operating items 260 207 7.3 5.9- excluding non-operating items 270 187 7.6 5.3Second quarter- including non-operating items 229 6.5- excluding non-operating items 192 5.4Third quarter- including non-operating items 214 6.1- excluding non-operating items 214 6.1Fourth quarter- including non-operating items 236 6.7- excluding non-operating items 236 6.7------------------------------- ----- -------- -------- --------Full year- including non-operating items 886 25.1- excluding non-operating items 829 23.5------------------------------- ----- -------- -------- -------- 9. IFRS 1 requirement - Reconciliation of profit and equity to previous GAAP Included within the Annual Report and Accounts for BG Group for the year ended31 December 2004 is a reconciliation of the income statement from UK GAAP toIFRS for the years ended 31 December 2003 and 2004 and a reconciliation ofequity at the transition date (1 January 2003), 31 December 2003, 31 December2004 and 1 January 2005, the date of adoption of IAS 32 and 39. This documentalso provides details of the impact of the adoption of IAS 32 and IAS 39 from 1January 2005, details of the reconciling items, BG Group's principal accountingpolicies under IFRS and the exemptions taken by BG Group in accordance with IFRS1 on transition to IFRS. In order to comply with IFRS 1, in this interim statement BG Group is alsopresenting a reconciliation from UK GAAP to IFRS of the profit for thecomparable financial period (the quarter ended31 March 2004), together with the equity at the end of the comparable period (31March 2004) as follows: Reconciliation of earnings between UK GAAP and IFRS Notes First Quarter 2004 £m Profit attributable to shareholders (earnings) underUK GAAP 206Effect of transition to IFRS:Pensions 1 (2)Premier Power CCGT Project 2 (1)Goodwill amortisation 3 4Regulatory current account 4 4Tax 5 (4)----------------------------------------------------- ------- ------------Profit attributable to shareholders (earnings) underIFRS 207----------------------------------------------------- ------- ------------ Reconciliation of equity between UK GAAP and IFRS Notes 31 March 2004 £m Total equity under UK GAAP 4 085Effect of transition to IFRS:Pensions 1 (37)Premier Power CCGT Project 2 17Goodwill 3 21Regulatory current account 4 8Deferred tax 5 (73)----------------------------------------------------- ------- ------------Total equity under IFRS 4 021----------------------------------------------------- ------- ------------ Notes 1. Pensions Cumulative actuarial gains and losses in respect of the Group's pension andpost-retirement benefit plans have been recognised in full on transition to IFRS(1 January 2003). Actuarial gains and losses arising from the transition dateare recognised over the average remaining service lives of employees (commonlyreferred to as the 'corridor' approach). The charge to operating costs inrespect of pensions has increased by £3 million in the quarter ended 31 March2004 compared to UK GAAP. The impact on earnings is a reduction of £2 millioncompared to UK GAAP and the impact on net assets as at 31 March 2004 is areduction of £37 million compared to UK GAAP. 9. IFRS 1 requirement - Reconciliation of profit and equity to previous GAAP(continued) 2. Premier Power CCGT Project In 2000, BG Group's wholly-owned subsidiary Premier Power Limited received £168million in consideration for the restructuring of power purchase agreements withNorthern Ireland Electricity following agreement to construct a new CCGT powerplant at Ballylumford. Under UK GAAP this amount was treated as deferred incomeand released over the life of the remaining power agreements, matched to theassociated asset depreciation charge. Under IFRS the amount has been recognisedas income in the year of receipt, along with the impairment of the property,plant and equipment associated with the original power plants. This has resultedin a reduction in operating profit for the quarter ended March 2004 of £1million and an increase in net assets as at31 March 2004 of £17 million. 3. Goodwill amortisation BG Group has used the exemption available under IFRS 1 for not restatingbusiness combinations. IFRS 3 requires that goodwill arising from businessRelated Shares:
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