14th Mar 2005 13:00
BP PLC14 March 2005 March 14, 2005 BP DETAILS 2005 FINANCIAL REPORTING CHANGES BP today detailed the changes it is making to its external financial reportingfor 2005, and the impacts these are expected to have on its reported results. As previously indicated in its strategy update in February this year, in 2005 BPis moving from reporting under UK Generally Accepted Accounting Principles (UKGAAP) to the new International Financial Reporting Standards (IFRS) and, as aconsequence, will also discontinue supplemental disclosure of results on a proforma basis. The company is also reorganising how it reports its businesses,primarily as a result of its plans to divest its olefins and derivativesbusiness. While some of these reporting changes will impact BP's reported earnings andcapital employed, they will have no impact on the economic value or theunderlying cash flow generated by the company. There will be no impact on thecash available for investment or for distribution to shareholders and there willbe no changes in BP's strategy and targets. Full details of the reporting changes and their impacts on BP's reporting willbe given in a presentation hosted by Byron Grote, BP's chief financial officer,to be webcast today, accessible at www.bp.com/webcast . The 2005 reporting changes fall into three main areas: • Re-segmentation: In preparation for the sale of its olefins and derivatives (O&D) business, BP has divided reporting of its petrochemicals operations between its refining and marketing segment and 'other businesses and corporate' (OB&C). These changes have no impact on BP's overall reported earnings and capital employed. Five years of historical data, for 2000 to 2004, re-stated on this new re-segmented basis, are being made available on BP's website. • International Financial Reporting Standards: As for all UK-listed companies, IFRS is replacing UK GAAP as BP's primary reporting framework for 2005. BP is also providing comparative data for 2003 and 2004 on an IFRS basis. Restated 2004 earnings under IFRS are $15.4 billion on a replacement cost basis(excluding inventory holding gains and losses) and $17.1 billion on anhistorical cost basis (including inventory holding gains and losses). In eachcase these earnings are $1.3 billion higher than under UK GAAP, principally dueto the absence of the amortisation of goodwill under IFRS. Under IFRS, 2004 year-end capital employed is essentially the same as under UKGAAP at $101 billion. IFRS also expands mark-to-market reporting, potentially making future reportedearnings more volatile. The main impact of this relates to long-term UK NorthSea gas contracts that are priced relative to oil and electricity, rather thangas indices, and contracts for the sale of natural gas liquids. BP will disclosemark-to-market gains and losses on such contracts as a Non-Operating Item in ourquarterly Stock Exchange Announcements. • Pro forma reporting: BP introduced supplemental disclosure of pro forma results in 2000, reporting results before acquisition amortisation for the ARCO and Burmah Castrol acquisitions which was required under UK GAAP, to allow better comparison to other oil companies who reported comparable combinations under 'pooling of interest' or 'merger' accounting under US or French GAAP. US GAAP, and now IFRS, have since prohibited pooling of interest accounting andalso eliminated goodwill amortisation on previous transactions such as the ARCOand Burmah Castrol acquisitions, providing a clearer and more comparablepresentation of underlying business results. As the IFRS income statement is now aligned more closely with the supplementalpro forma disclosure, BP has decided, as announced at the February 2005 strategyupdate, that pro forma reporting is no longer necessary and has therefore chosento discontinue it to simplify its financial reporting. Due to the inclusion of goodwill on the balance sheet, capital employed underIFRS is $11.6 billion higher than on a pro forma basis, reducing BP's gearing -the ratio of net debt to net debt plus equity - by some 3 per cent at year-end2004. BP is therefore reducing its target gearing band - a key element of thecompany's financial framework - from 25-35 per cent to 20-30 per cent tomaintain the economic substance of the financial framework. BP expects tocontinue operating in the lower half of the band in the current priceenvironment. Further details of all these changes will be available on BP's website followingtoday's presentation, including comparative data for 2003 and each quarter of2004 and spreadsheets to assist investors in the updating of their financialmodels. The presentation takes place at 14.00 GMT and can be accessed atwww.bp.com/webcast . - ENDS - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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