2nd Apr 2009 13:45
BG GROUP PLC PUBLICATION OF DOCUMENTS: 2008 ANNUAL REPORT AND ACCOUNTS AND NOTICE OF ANNUAL GENERAL MEETING ON 18 MAY 2009
In accordance with Listing Rule 9.6.1, BG Group plc has today submitted to the UK Listing Authority two copies of the following document:
- Annual Report and Accounts for the year ended 31 December 2008
The above document incorporates the Notice of Annual General Meeting to be held on 18 May 2009.
The Annual Report and Accounts for the year ended 31 December 2008 are attached to this announcement as a PDF file and are also available on the BG Group website at
www.bg-group.com/ara
http://www.rns-pdf.londonstockexchange.com/rns/0184Q_-2009-4-2.pdf
The document will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS.
The Notice of Annual General Meeting for 2009 includes a resolution to amend the Articles of Association with effect from the conclusion of the meeting, and a further resolution to adopt new Articles of Association with effect from 1 October 2009. Copies of the proposed revised and new Articles of Association have been forwarded to the Financial Services Authority in accordance with Disclosure and Transparency Rule 6.1.2 and are available on our website at www.bg-group.com/ara
_______________________________________________________________
IMPORTANT: EXPLANATORY NOTE AND WARNING
The primary purpose of this announcement is to inform the market about the publication of BG Group plc's Annual Report and Accounts for the year ended 31 December 2008 (the "2008 Annual Report and Accounts").
The information below, which is extracted from the 2008 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with BG Group plc's Preliminary Announcement issued on 5 February 2009. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2008 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-reference in the 2008 Annual Report and Accounts.
ADDITIONAL INFORMATION REQUIRED BY DISCLOSURE AND TRANSPARENCY RULE 6.3.5
Statement of Directors' Responsibilities for Preparing the Financial Statements
The following statement which was prepared for the purposes of the 2008 Annual Report and Accounts is set out on page 53 of that document. As set out above, this statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from the 2008 Annual Report and Accounts. It is not connected to the extracted and summarised information presented in this announcement and in BG Group plc's Preliminary Announcement that was published on 5 February 2009.
"Pursuant to Rule 4.1.12 of the Disclosure and Transparency Rules, each of the Directors, the names and functions of whom are set out on pages 40 to 41, confirms that to the best of his or her knowledge:
the Group Financial Statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
the management report represented by the Directors' Report on pages 2 to 63 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.
By order of the Board
Frank Chapman
Chief Executive
Ashley Almanza
Chief Financial Officer
11 March 2009"
Related Party Transactions
The following description of related party transactions is set out on page 107 of the 2008 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.
"In the normal course of business BG Group provides goods and services to, and receives goods and services from, its joint ventures and associates. In the year ended 31 December 2008, the Group received and incurred the following income and charges from these joint ventures and associates:
|
2008 |
2007 |
|||||||||
|
Income |
Charges |
Income |
Charges |
|||||||
|
£m |
£m |
£m |
£m |
|||||||
|
LNG |
145 |
(733) |
88 |
(440) |
||||||
|
Other |
75 |
(10) |
40 |
(15) |
||||||
|
220 |
(743) |
128 |
(455) |
|||||||
As at 31 December 2008, a debtor balance of £50m (2007 £46m) (see note 16, page 93) and a creditor balance of £38m (2007 £46m) (see note 20, page 101) were outstanding with these parties.
In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2008, loans of £934m (2007 £658m) were due from joint ventures and associates. These loans are accounted for as part of BG Group's investment in joint ventures and associates and disclosed in note 13, page 91. Interest of £32m (2007 £29m) was charged on these loans during the year at interest rates of between 0% and 9.95% (2007 0% and 9.95%). The maximum debt outstanding during the year was £934m (2007 £658m).
A joint venture company provided BG Group with a financing arrangement during the year. As at 31 December 2008, a loan of £72m was due to the joint venture. The borrowing is disclosed in note 18, page 94. Interest on the loan of £0.5m (2007 £nil) was payable during the year at an interest rate of 5.3%.
BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2008, the obligation was £110m (2007 £80m) (see note 18, page 94). Interest of £5m (2007 £nil) was paid during the year in respect of this lease. The lease expires in 2027.
Amounts outstanding between the parent company and subsidiary undertakings as at 31 December 2008 are given in note 16, page 93 and note 20, page 101.
William Backhouse, the son of Peter Backhouse, a non-executive Director, is employed by BG International Limited, a wholly owned subsidiary of BG Group plc. Peter Backhouse is regarded as interested in the contract of employment by virtue of his relationship with William Backhouse. The terms and conditions of William Backhouse's employment are in line with others employed in a similar role."
Principal Risks and Uncertainties
The following description of principal risks and uncertainties is set out on pages 17 to19 of the 2008 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.
"This section provides a description of the principal risks and uncertainties that could have a material adverse effect on BG Group's strategy, performance, results, financial condition and/or reputation. The principal risks and uncertainties facing the business, set out below, do not appear in any particular order of potential materiality or probability of occurrence.
It is important to note that not all of these risks are within the Group's control. It is also not certain that the Group's processes for identifying and managing risk will be successful in fully mitigating all relevant risks. The Group may also be adversely affected by other risks besides the principal risks listed here. Investors should carefully consider the principal risks and uncertainties described in this section in conjunction with the Legal Notice set out on page 136.
The risks set out below should be viewed in the context of what are now very challenging global economic conditions. In almost all countries, industrial and consumer demand is falling sharply as the economic crisis continues. Those changes can directly impact Group performance, particularly through falling commodity prices, as indicated below. The Chairman's and Chief Executive's statements on pages 6 to 10 provide an overview of BG Group's perspective on the global economic outlook. The Strategy section on pages 11 to 16 summarises the Group's short, medium and long-term plans for continued growth and value creation through the current downturn and beyond.
BG Group's proactive approach to the identification, assessment and mitigation of risk is delivered through the Business Risk Management Process, a mandatory Group-wide process designed to enable timely and appropriate management of risk.
The Audit Committee oversees the framework within which BG Group's risk management systems operate. The Group Executive Committee (GEC) has overall accountability for the identification and management of risk across the Group. In addition, individual executive committees such as the Energy Trading and Credit Risk Committee and the Group Performance Committee monitor specific risk areas. The Governance and Risk Committee provides assurance to the GEC on the effectiveness of the Group's risk management framework and processes. Details of the executive committees and their responsibilities are given on pages 48 and 49.
Risks are identified at project, operational and strategic levels. Management of risk is a line responsibility; however, risks are also monitored at corporate level by the relevant BG Group technical and professional functions and by the Group's management committees. Aggregated risk information is also shared widely across the global organisation to ensure that the Group's business units are aware of the wider risk environment when assessing the challenges in their own areas of responsibility.
Commodity prices
BG Group's results are sensitive to natural gas and crude oil prices which are dependent on a number of factors which impact world supply and demand. The Group's exposure to commodity prices also varies according to a number of other factors, including the mix of production and sales. The Group estimates that, other factors being constant, a US$1.00 rise (or fall) in the Brent oil price would increase (or decrease) operating profit in the Group's E&P business in 2009 by around £55 million.
The Group's portfolio includes a range of long-term gas contracts which are not directly or immediately linked to short-term changes in commodity prices. Additionally, some LNG purchase contracts contain provisions under which the gas suppliers share price risk with BG Group. The Group does not, as a matter of course, hedge all commodity prices, but may hedge certain LNG contracts and gas and oil revenue streams from time to time. In marketing its gas supply portfolio, the Group undertakes commodity hedging and trading activities, including the use of natural gas futures contracts, financial and physical forward-based contracts and swap contracts.
Fluctuations in exchange rates
BG Group's cash flow, income statement and balance sheet are reported in pounds Sterling and may be affected by fluctuations in exchange rates. A significant majority of the Group's business activities is conducted in US Dollars, and the Group holds substantial US Dollar-denominated assets. BG Group estimates that, in 2009, other factors being constant, a 10 cent strengthening (or weakening) in the US Dollar against the pound Sterling would increase (or decrease) operating profit by approximately £250 to 300 million.
In light of its US Dollar exposure, the Group borrows in, or swaps the majority of its borrowings into, US Dollars. In general, the Group does not hedge US Dollar-denominated transactions, although it may do so for specific transactions. The Group's net balance sheet exposure to currencies other than the US Dollar or pound Sterling (primarily the Brazilian Real and Australian Dollar) is managed on a case-by-case basis, partly by hedging certain expected cash flows into pound Sterling or US Dollars. Subsidiary undertakings which borrow without recourse to the Group are generally required to borrow in, or swap borrowing into, their respective functional currency.
Credit
The challenging credit environment during 2008 has highlighted the importance of governance and management of credit risk. BG Group's exposure to credit risk takes the form of a loss that would be recognised if counterparties failed to, or were unable to, meet their payment obligations. These risks may arise in certain agreements in relation to amounts owed for physical product sales, the use of derivative instruments, and the investment of surplus cash balances. The Group is also exposed to political and economic risk events, which may cause non-payment of foreign currency obligations to BG Group. The current credit crisis could also lead to the failure of companies in the sector, potentially including partners, contractors and suppliers.
Credit exposure risk is monitored centrally for individual transaction and concentration risk and the appropriateness of limits. The Group considers each counterparty's financial condition prior to entering into commercial contracts, trading sales agreements, swaps, futures and options contracts. The Group may also seek cash collateral, letters of credit or parent company guarantees. Where multiple transactions are undertaken with a single counterparty or group of related counterparties, the Group may enter into a netting arrangement such as the standard International Swaps and Derivative Association (ISDA) documentation for financial transactions. For physical commodity trading, BG Group seeks to put in place bespoke master netting agreements or standard arrangements appropriate to the local market.
Interest rate and liquidity risk
The Group's financing costs may be significantly affected by interest rate volatility. The Group is also exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage financing risks could have a material impact on the Group's cash flow, balance sheet and financial position.
The Group's interest rate management policy requires that borrowings are substantially floating rate. Exceptions from this policy require approval from the Group's Finance Committee. The Group maintains adequate committed borrowing facilities and holds its financial assets primarily in short-term, highly liquid investments that are readily convertible to known amounts of cash. The Group imposes limits on the amount of borrowings that mature within any specific period.
Reserves development and project delivery
Delivery of growth from the portfolio outlined on page 11 will depend to a significant extent upon developing reserves and completion of various development and expansion projects. The Group's ability to develop reserves could be affected by inaccurate interpretation of received data, unexpected drilling conditions or by inadequate human or technical resources. During the pre-sanction phase, projects are subject to a number of sub-surface, engineering, stakeholder, commercial and regulatory risks. The principal risk prior to sanction is failure to assess accurately the project schedule and cost, leading to margin erosion or negative returns. Failure to select the most suitable development concept, based on a full lifecycle understanding of the project, can expose projects to additional risk and cost. Subsequent delivery of the projects is subject to cost and time overruns; Health, Safety, Security and Environmental (HSSE) risks; technical, commercial, legal or regulatory compliance failures; equipment shortages; availability, competence and capability of human resources and contractors; unscheduled outages; mechanical and technical difficulties; and gas pipeline system constraints. In many cases, the cause of delay or cost overrun in project implementation can be the misalignment of partner objectives; political factors can also often be a significant risk to project delivery.
Development planning and project delivery are subject to stringent internal assurance processes to optimise designs and minimise risk. Due diligence prior to the final investment decision includes rigorous scrutiny of feasibility studies, concept selection and definition, project planning, commercialisation options and project economics. Projects are screened against a wide range of external sensitivities, including stakeholder issues, commodity prices and input costs. BG Group is focused on project management throughout the development lifecycle, assuring performance against Group-wide technical standards and applying strict capital and cost discipline to ensure value is protected. The Group seeks to ensure that effective stakeholder alignment enables an adequate degree of control during project construction and operation.
Industry costs
Inflation in raw materials costs and in the costs of goods and services from industry suppliers and manufacturers presents risks to project economics. The rapid reduction in commodity prices and demand in recent months has already led to reductions in some industry costs, notably raw materials. However, the timing of cost reductions can lag the decline in commodity prices; and sustainable project economics depend upon the degree and timing of commitment to particular cost structures.
Industry costs are already beginning to respond to the downturn in activity. Input costs of some raw materials have already fallen sharply, and the Group expects other supply costs to moderate over the next 12 to 18 months. The cost reductions expected as a result of these market forces will provide the Group with an opportunity to lock in lower unit costs across its portfolio of new projects.
Operational performance
BG Group's production volumes (and therefore revenues) are dependent on the continued performance of its production assets. The Group's production assets are subject to operational risks including: equipment or limited plant availability due to plant maintenance or shutdowns; asset integrity and HSSE incidents; adverse reserves recovery from the field; the performance of joint venture partners; and exposure to natural hazards such as extreme weather events.
BG Group has mandatory policies and standards governing all aspects of production including HSSE and asset integrity. These are supported by assurance processes which are applied across its global operations and which are supervised by the Group's professional technical functions.
Health, Safety, Security and Environment (HSSE)
Hydrocarbon production - and operations in harsh and remote working environments - present a number of HSSE risks. These include: asset integrity failure; loss of containment of hydrocarbons and other hazardous materials; personal health and safety; effects of natural disasters and pandemics; and security of personnel. These risks could result in injury or loss of life, damage to the environment or loss of certain facilities.
Safety and asset integrity are overriding priorities for the Group. The Group's mandatory HSSE and Asset Integrity Standards are regularly reviewed to ensure they are in line with industry best practice, and are embedded in the organisation through extensive training backed up by regular audits and assessments. Further details of the Group's approach to HSSE risk are set out in The way we work section on page 35.
Stakeholder relationships
Successful delivery of BG Group's strategic objectives depends in part on the Group's ability to maintain positive and collaborative stakeholder relationships - and to act with integrity - in the countries in which it does business. This includes the Group's management of relationships with, for example, governments and host communities as well as with national oil companies, many of which play a key role in determining access to a substantial percentage of global hydrocarbons. Stakeholder issues have the potential to impact directly on project economics or on BG Group's scope to operate in line with its business plan. For example, resource-owning nations may seek to alter fiscal or other terms governing oil and gas industry operations.
BG Group is committed to alignment with governments and key stakeholders, built around long-term relationships, economic development, local content and employment creation. Through this approach - based on the objective of shared benefits - the Group seeks to build a foundation of stakeholder support for its operations that is key to sustainability. Governments of resource-owning nations are aware of their need for foreign direct investment amid capital scarcity, and understand that there is competition between nations to attract that investment. In BG Group's view, host governments also understand the importance that investors place on stability and sanctity of contract. Further details of the Group's approach to stakeholder alignment are set out in The way we work section on page 35.
Climate change policy
Policies and initiatives at national and international level to address climate change are likely to affect business conditions and demand for various types of energy in the medium to long term. Policy approaches which promote the usage of non-hydrocarbon energy sources (such as renewables, biofuels, hydroelectric power and nuclear power) may have an impact on BG Group's ability to maintain its position in key markets. Additionally, new regulatory regimes intended to establish emissions trading schemes could alter hydrocarbon production economics. Access to oil and gas resources may also be affected by developments in policies intended to protect local habitats.
BG Group's strategy takes account of the fact that many governments are now seeking increased natural gas utilisation as a lower-carbon alternative to coal or oil within the context of their broader climate change mitigation strategies. However, public policy responses to global warming continue to evolve, and BG Group closely monitors developments in this area. Further details of the Group's approach and perspective on climate change are set out in the way we work section on page 35 of this report and in the BG Group Sustainability Report, available online at www.bg-group.com/sr"
Legal Notice
This announcement contains forward-looking statements. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. No part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in BG Group plc or any other entity, and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements. BG Group is subject to the regulatory requirements of the Financial Services Authority of the United Kingdom.
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