Presentation of non-GAAP measures
BG Group gives certain additional information in a non-statutory format in order to provide readers with an increased insight into the underlying performance of the business. The measures BG Group uses are explained below.
Business Performance
‘Business Performance’ excludes disposals, certain re-measurements and impairments (see below), and is presented as exclusion of these items provides readers with a clear and consistent presentation of the underlying operating performance of the Group’s ongoing business.
BG Group uses commodity instruments to manage price exposures associated with its marketing and optimisation activity in the UK and USA. This activity enables the Group to take advantage of commodity price movements. It is considered more appropriate to include both unrealised and realised gains and losses arising from the mark-to-market of derivatives associated with this activity in ‘Business Performance’.
Disposals, certain re-measurements and impairments
BG Group’s commercial arrangements for marketing gas include the use of long-term gas sales contracts. Whilst the activity surrounding these contracts involves the physical delivery of gas, certain UK gas sales contracts are classified as derivatives under the rules of International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’, issued by the IASB and are required to be measured at fair value at the balance sheet date. Unrealised gains and losses on these contracts reflect the comparison between current market gas prices and the actual prices to be realised under the gas sales contract and are disclosed separately as ‘disposals, re-measurements and impairments’.
BG Group also uses commodity instruments to manage certain price exposures in respect of optimising the timing and location of its physical gas and LNG commitments. These instruments are also required to be measured at fair value at the balance sheet date under IAS 39. However, IAS 39 does not allow the matching of these fair values to the economically hedged value of the related commodity, resulting in unrealised movements in fair value being recorded in the income statement. These movements in fair value are disclosed separately as ‘disposals, re-measurements and impairments’.
BG Group also uses financial instruments, including derivatives, to manage foreign exchange and interest rate exposure. These instruments are required to be recognised at fair value or amortised cost on the balance sheet in accordance with IAS 39. Most of these instruments have been designated either as hedges of foreign exchange movements associated with the Group’s net investments in foreign operations, or as hedges of interest rate risk. Where these instruments cannot be designated as hedges under IAS 39, unrealised movements in fair value are recorded in the income statement and disclosed separately as ‘disposals, re-measurements and impairments’.
Realised gains and losses relating to the instruments referred to above are included in Business Performance. This presentation best reflects the underlying performance of the business since it distinguishes between the temporary timing differences associated with re-measurements under IAS 39 rules and actual realised gains and losses.
BG Group has also separately identified profits and losses associated with the disposal of non-current assets and impairments of non-current assets as they require separate disclosure in order to provide a clearer understanding of the results for the period. For a reconciliation between the overall results and Business Performance and details of disposals, re-measurements and impairments, see note 2.
Joint ventures and associates
Under IFRS the results from jointly controlled entities (joint ventures) and associates, accounted for under the equity method, are required to be presented net of finance costs and tax on the face of the income statement. Given the relevance of these businesses within BG Group, the results of joint ventures and associates are presented before interest and tax, and after tax. This approach provides additional information on the source of BG Group’s operating profits. For a reconciliation between operating profit and earnings including and excluding the results of joint ventures and associates, see note 2.
Exchange rates and prices
BG Group also discloses certain information, as indicated, at constant US$/UK£ exchange rates and upstream prices. The presentation of results in this manner is intended to provide additional information to explain further the underlying trends in the business. The disclosure re-calculates the current year profit on the basis that the US$/UK£ exchange rate and the upstream commodity prices were the same as in the previous year – so providing a comparable base in respect of these two factors.
Net borrowings/funds
BG Group provides an analysis of the amounts included within net borrowings/funds as this is an important liquidity measure for the Group.
Return on average capital employed (ROACE) represents profit before tax (excluding disposals, re-measurements and impairments) plus net interest payable on net borrowings, as a percentage of average capital employed.