FEM117: Financial Reporting & Analysis

Module Leader: Mr. Eugene Apakoh

Coursework title:

Financial statement analysis

BG Group Plc. FINANCIAL STATEMENT
ANALYSIS- BG GROUP PLC

Royal Docks Business School

GROUP MEMBERS:-
U0954187 – SAURABH MALIK
U0952588 – MOHIT CHATPALLIWAR
U1035517– MARIA DEL MAR RODRIGUEZ
 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

Table Content

Executive Summary…………………………………………………………………………3

Introduction …………………………………………………………………………………4

Company profile….…………………………………………………………………………5

Revenue analysis……………………………………………………………………………..7

Accounting Analysis ……………………………………………………….………………..9

1. Income Statement Analysis…………………………………………………………………9

2. Cash Flow Statement Analysis……………………………………………………………. 11
3. Balance Sheet Analysis……………………………………………………………………. 13
4. Financial Ratio Analysis ………………………………………………………………….. 19
Profiability Ratios………………………………………………………………………… 19
Liquidity Ratios ……………………………………………………………………21
Leverage Ratios ……………………………………………………………………21
Activity Ratios ……………………………………………………………………..22
Management Ratios………………………………………………………………..24

5. Stock Performance and Beta Analysis……………………………………………………25

6. Non-financial Analysis……………………………………………………………………. 27
SWOT analysis……………………………………………………………………………..27
7. Conclusion ………………………………………………………………………………… 29
8. References…………………………………………………………………………………..31
9. Appendixes………………………………………………………………………………….33

EXECUTIVE SUMMARY

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

This report is prepared to analyze the financial statement of BG Group plc which is one of the
emerging leaders in natural gas. We have taken into consideration the peers of the company
which also operate in the UK in the same industry. They all use the accounting methods
established by IFRS (International Financial Reporting Standard).
The report carries synopsis of the company’s profile with its business strategies along with the
latest developments of the industry. The report also includes extensive financial analysis,
competitors’ analysis and non-financial analysis in terms of strength, weakness, opportunity, and
threat. Apart from this, it also contains performance of company’s stock against its competitors.
The income statement has shown a decrease in revenue growth by 18.7% from the previous year,
which is due to global economic downturn. Overall, BG Group has in-fact nearly doubled its
revenue over the past 5 years i.e. from 2005 to 2009.
In the sales comparison with its competitors, the firm reported less net sales but it recorded a
higher net income demonstrating a better performance in terms of efficiency.
BG Group has been aiming to achieve their objectives through mergers and acquisitions as
observed from the analysis of the balance sheet, increasing its assets by more than £14600
million and rise in debt by £6559 million so as to supply the demand of the emerging gas market
during the last five years.
Company has shown remarkable performance in all the ratios as compare to the same indicators
of company’s peers. However, compare to results in previous year the performance in 2009 has
been deteriorated in some areas due to global economic downturn. In 2009, the company’s ROE
and ROA was 15.96% and 8.25% respectively. Examining current and quick ratio, company has
sufficient liquidity to meet its obligations. Solvency and efficiency ratios are also better than
industry and its competitors. The price ratios have increased over the year with EPS being 64.5
pence in 2009.
In order to obtain the company’s volatility, we have calculated Beta. Taking into consideration
S&P 500 as market index and the historical stock prices for the previous five years (from
December 1, 2005 to December 1, 2010), the analysis showed a beta of 0.368 denoting less risk
but less reward at the same time. According to the last trade it has reached its maximum value of
1277.50 pence, increasing its share price by 0.83%, both good signals of the company’s stability
performance.

Finally relying on non-financial analysis, our analysis of BG’s group operations in the last five
years has revealed that despite the global economic downturn the company’s operating
performance has shown increases in total reserves and resources.

INTRODUCTION
The following report aims to encompass both financial as well as non-financial performance of
BG Group, a company operating in the energy sector. As concern in the world’s energy market
has grown, natural gas has been the general preference of the international market in the past
years. This factor makes BG’s financial statements interesting to examine.

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

For the purpose of our report we have identified two competitors in the same industry Centrica
Plc. and National Grid Plc.1 We have tried to look at all the aspects of the company and we have
included relevant information in the study of the company’s performance from 2005 to 2009.

Our income statement report has been carried out to study the trend on revenue and sales using
time series and common size analysis. Assets, liabilities and equity have been identified in the
balance sheet in order to reveal contained information about its stability. Operating, investment
and financial activities have been analyzed in the cash flow statement.

BG Group’s ratio analysis is aimed to illustrate how efficient the company is using its resources
in order to generate income. We have structured our report in the following manner: the
company’s profitability at the outset; liquidity has been analyzed as the next point followed by
the BG’s solvency and efficiency. Price ratios have also analyzed to know about the financial
strength of the company.

In the last part of our report we have identified Strengths, Weaknesses, Opportunities and
Threats (SWOT) facing the organization in order to identify the different factors that can affect
the entity’s objectives in the future. In the end we have given the sound conclusion to our report.
We have considered BG’s annual public financial reports as the major sources of data for our
analysis. It is available at company’s website: www.bg-group.com

COMPANY’S PROFILE
BG Group is an energy sector operator, playing a vital role as natural gas company in the
international energy market.
The corporation’s headquarters are based in based in Berkshire, UK, the company operates in 27
countries over five continents. It was created in 1997 following the demerger of British Gas plc
but it wasn’t until 1999 that BG Group plc adopted its actual name.
BG Group carries out operations in four different sectors: Exploration and Production (E&P),
Liquefied Natural Gas (LNG), Transmission and Distribution (T&D), and Power Generation
(P&G). The company has been able to develop and supply the demand of the new sources of
energy due to the international expansion of BG Group.
BG Group is committed to ensure the success of its objectives in the long term performance on
the basis of principles of ethical conduct.
During these years the company has increased the value of their shareholders, thus acting with
integrity and meeting the company’s objectives.

1 http://investing.businessweek.com/businessweek/research/stocks/financials/ratios.asp?ticker=BG/:LN

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

Demerger history
1986. The British Government decided to sell off British Gas as part of its going privatization
plan. A new company was formed, British Gas plc.
1997. British plc was disbanded into two new companies, Centrica plc and BG PLC.
1999. BG plc was restructured, leading to form a parent company, BG Group plc.
2000. BG Group plc was demerged with Lattice Group to form National Grid Transco plc.
2005. National Grid Transco plc was given a new names as National Grid plc to provide an
unambiguous identity across all its operations.

Quick facts
- £10213 million in annual revenue, and a profit of £3773 million in 2009
- It has about 6000 employees working around the world
- More than 60% of management is based internationally despite BG’s headquarters
being in the UK
-BG Group possesses gas terminals off the coast of Britain and the US, it provides about
50% of all gas displaced from the Atlantic to the Pacific Ocean in 2007
- It already owns reserves and resources to meet future growth ambitions, in 2009 the
company risen its assets by a further 10%
- According to IEA, with gas being the most widely used fuel, the global demand for
natural gas is expected to increase by 1.5% per annum until 2030
- In the last five years BG group has been one of the major suppliers of LNG in world’s largest
gas market USA.
- It’s been identified as a sustainable leader by Dow Jones Sustainability Index,
FTSE4Good and Goldman Sachs for its corporate performance.

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

REVENUE ANALYSIS
Revenue analysis is one of the important analyses to know about the company’s sales activities
and profitability. Following table shows the sales and sales growth of BG Group between 2005
and 2009:-
Table 1: Growth percentage of total revenue

Figure 1: Total Revenue (in £ millions)

The above graph shows that total revenue of BG Group have increased from £5612 million in
year 2005 to £12566 million in year 2008. This is because of the exceptionally high commodity
prices and acquisition of Queensland Gas Company Limited, a leading Australian coal seam gas
company in October 2008. However, the sales revenue in year 2009 has been decreased by
18.73% which dropped down to £10213 million. This is mainly because of the fall in commodity
prices of oil and gas. In 2009 there was a decline of 37% in Brent oil prices and 53% decline in
Henry Hub gas prices. Moreover, the global economic conditions had adversely affected the
demand energy sector in some of the key markets of BG Group. For year 2010 the total group
revenue for Q3 of 2010 is $4500 million (£2886 million) as compare to $3667 million (£2352
million) in Q3 of 2009. We also noticed a hike of 22.7% in the group revenue of 2010 as
compared to year 2009 which was due to the higher realized oil, liquids and international gas
prices.

Comparison of revenue with competitors

BG Group’s main competitors are companies like Centrica plc, National Grid Plc., Royal Dutch
Shell Plc., BP Plc., to name a few. However, for the purpose of fairness in comparison we will
analyze the performance of BG Group plc with that of Centrica plc and National Grid plc. The
reason for selecting these as comparators is that both of these companies are engaged in the same
sort of business activities and they maintain their financial accounts in British Pounds (£) which
provides fair comparison with BG Group.
Table 2: BG Group’s revenue comparison with its competitors during 2009

Figure 2: Comparison of sales in 2009

In 2009, BG Group’s sales were lower as compare to its competitors. Also, BG group
experienced the higher negative sales growth as compare to its competitors. The sales of
National Grid decline by 10.47% in 2009 against BG’s negative sales growth of 18.73%. On the

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

other hand the sales revenue of Centrica increased by 2.90% in 2009. Despite lower sales growth
the net profit of BG Group (£2264 million) was higher than net profits of National Grid (£1389
million) and Centrica (£856 million). The reason is that Centrica’s cost of sales remained higher
(almost 80%of total revenue) during 2008 and 2009. The table also reflects the net profit margin
(21.23%) and operating margin (37.81%) of BG Group is better than Centrica and National Grid
in financial year 2009-2010.
Thus, BG Group’s performance was better than its competitors in terms of net income as
compare to its peers.

ACCOUNTING ANALYSIS
The financial statements of BG Group are prepares according to International Financial
Reporting Standards (IFRS) as adopted by European Union that requires the company to make
judgments and assumption during the preparation of financial statements. We will do analysis of
income statement, cash flow statement and balance sheet to measure the financial health of BG
Group.
INCOME STATEMENT ANALYSIS
The table below shows the common size income statement of BG Group during 2005-2009:-
Table 3: Common size Income statement of BG Group

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Figure 3: BG Group’s common size income statement analysis

From the common size income statement we analyze that the proportion of operating cost to total
revenue of BG Group was higher (63.47%) in the year 2009. This was due to the significant
increase in exploration activities in Brazil, expansion of group’s portfolio via alliance with
EXCO resources in USA and acquisition of Pure Energy Resources in Australia which increased
the selling, administration and general expenses. This was further aggravated by the rise in the
commodity prices due to which operating profits declined from 41.69% (£5239 million) of total
revenue in 2008 to 36.94% (£3773 million) in 2009. The fall in interest income and a rise in
interest expense further led to a decline in the net profits to 22.17% due to a significant rise in all
the expenses.

Table 4: Percentage change in Income statement of BG group

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

As discussed earlier, revenue of BG Group declined by 18.73% in 2009 in comparison with

previous year. There operating profits also declined by 27.98% which further led to fall in net
profits by 28.13% in year 2009.

CASH FLOW ATATEMENT ANALYSIS

The below table shows the common size cash flow statement of BG Group:-
Table 5: Common-size cash flow statement (as a percentage of revenue)

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Figure 6: Common size cash flow fluctuations

The cash flow from operating activities is one of the major sources of the company’s finances.
The above data depicts that BG Group’s operating, investing and financing cash flows from 2005
to 2009.

The cash generated by operations in 2009 decreased by 22% to £4895 million (£6274 million in
2008) mainly due to lower commodity prices. The net cash inflow from operations increased till
2008 because of increase in non-cash transactions and trade payables. However, its proportion to
total revenue declined to 34.70% in 2009 from 34.94% in 2008. Trade and other payables
increased significantly up till 2008 when it was £3632 million but in 2009 it reduced down to
£2592 million.

Cash outflow from its investing activities increased from £62 million in 2005 to £4981 million in
2009. This was due to increased capital expenditure since 2005. In 2009, BG Group purchased
the Pure Energy Resources Limited in Australia for. Similarly In 2008, company spent £464
million on capital expenditure on the acquisition of Queensland Gas Company. There was also a
rise in payments made in acquisition of property, plant and equipment and intangible assets to
£4328 million (£2796 million in 2008). It was 41.3% of group’s total revenue in 2009 as
compare to 21.9% in 2008.

Cash flows from financing activities includes a net cash inflow of £1131 million in 2009 (£643
million outflow in 2008). It also includes net proceeds of £1842 million from the issue of new
borrowings (2008 £300 million) which rose to almost 18% of the total revenue as compare to 2%
in 2008. However, there were also rise in net outflows of dividends paid to minorities £36
million (2008 £35 million) and net interest paid £106 million (2008 £19 million) during 2009.

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Figure 7: Cash Flow fluctuations

BALANCE SHEET ANALYSIS

We can analyze the financial performance of BG Group by making assets and liabilities analysis.
Below is the assets side and liabilities size analysis of BG Group during 2005-2009:-

Asset side analysis

Table 6: BG Group’s common size assets

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Figure 8: Total Assets of BG Group Plc. (2005-2009)

The above chart shows that the total assets of BG group increased significantly to £26282
million in 2009 (£11605 in 2005). This was due to the continuous expansion of group’s LNG
business throughout the period under consideration. During 2009, BG Group made an asset swap
with BP the Armada, Everest and Lomond fields which further increased the assets acquired by
the company.

From the common size balance sheet analysis, it is observed that the proportion of non-current
assets to total assets was highest at 80% in the financial year 2009 mainly due to increase in the
proportion of property, plant and equipment, goodwill and other intangible assets. However,
there was a declining trend in the proportion of current assets which remained at 20% in 2009 as
compare to 33% in 2007. This was caused by a subsequent fall in cash & cash equivalents, trade
receivable and other current assets such as commodity contracts and derivative financial
instruments.

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Figure 9: Comparison of structure of assets (Financial year 2009)

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Liability side analysis

Table 7: BG Group’s common size liabilities

Figure 10: Total liabilities and equities of BG Group Plc. (2005-2009)

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The above chart depicts that the amount of current liabilities increased from £2509 million in
2005 to £6488 million in 2008 because of the higher trade and other payables (£3632 million).
However, in 2009 this amount reduced down to £5148 mainly due to the reduction in trade
payables and other current liabilities which includes the tax liability and commodity contracts.

After analyzing the common size liabilities, it is scrutinize that the proportion of long-term
borrowings declined until the year 2008 (12.9% in 2005 to 7.59% in 2008) but in 2009 it again
grew up to 11.84%. The main reason of this change was the group’s obligation to finance lease
in respect of LNG ships and infrastructure and the reduction in effective post-swap interest rates
between 0.2% to 11% in 2009 ( 4% and 17% in 2008). However, total debt remained low in
2009 (45.2%) as compare to 2008 (48.4%).

The structure of liabilities also suggests that the group financed its business operations through
both debt and equity though the proportion of equity remained more than 50% over the last five
years. As compare to 2008, in 2009 BG Group’s dependence on debt (45%) has been reduced
down marginally implying that the equity financing (55%) has been increased.

Figure 11: Comparison of structure of liabilities

FINANCIAL RATIO ANALYSIS

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The analysis of financial ratios is most important measure of company’s financial strength. We
will analyze BG Group’s financial performance in respect to its profitability, liquidity, solvency,
efficiency and management ratios.
PROFITABILITY RATIOS
The following data represents the profitability situation of BG Group Plc. during the last five
years.
Table 8: Profitability ratios of BG Group

The net profit margin of BG Group shows a decreasing trend over the last five years. It declined
from 24.88% in 2008 to 21.23% in 2009 because of the lower earnings caused by lower
international oil & gas prices during global economic recession. However, the group performed
better than industry average of 13.10% and competitors Centrica and National Grid whose net
profit margins in 2009 remained lower at 4.53% & 15.68% respectively. Similarly, the group’s
operating margin also declined significantly due to a rise in operating costs.
The Return on Assets (ROA), Return on Capital Employed (ROCE) and Return on Equity (ROE)
are other important ratios for analyzing a company’s profitability. The investors normally look
for ROA of at least 5%. Throughout the analysis we observed that the ROA of the group lie
between 8%-14% which is higher than industry average (3.69%), Centrica (4.34%) and National
Grid (3.18%) that means BG’s assets are more productive than the competitors. Similarly, the
group is more capable of generating higher returns on the capital employed as compare to its
competitors. The ROCE was highest (33.29%) in the year 2006, however by the end of the year
2009 it fell down to 18.27% due to lower profit margin in the same year.
On the other side, the group did not perform better in terms of return on shareholder’s equity.
Generally ROE ratio between 15% and 20% is regarded as the attractive level of quality
investment by financial analysts. Although BG Group’s ROE ratio was better than industry
average of 6.39% but its competitors in the market are more efficient in generating profits from
shareholder’s equity. The group’s ROE ratio in 2009 was 15.96% as compare to Centrica Plc.
(20.42%) and National Grid Plc. (33.08%).

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Figure 12: BG’s profitability ratio comparison with competitors (2009-2010)

Thus BG Group has better profitability condition than industry average and its competitors
Centrica Plc. and National Grid Plc.

LIQUIDITY RATIOS
The following data represents the liquidity situation of BG Group Plc. during the last five years.
Table 9: Liquidity Ratio of BG Group

The current ratio of BG Group increased initially (1.47 times in 2006) but in the later periods it
dropped down significantly. By the end of year 2009 it fell down by almost 31% to 1.01 times
better than industry average of 0.65 times. This was because current assets fell more than the
current liabilities. Current assets declined mainly due to less availability of cash & equivalents
and short-term derivative financial instruments. The financial analysts usually expect the current
ratio of any company should be at least more than one but the ideal ratio is 2 times (2:1). But
because of the nature of the oil and gas industry, any current ratio of more than 1 can be
considered as ideal. The comparable companies Centrica and National Grid also had the similar
ratios. Centrica Plc had the current ratio of 1.05 times which is nearly the same as BG Group.
However, the current ratio of National Grid Plc was less than 1 at 0.77 times in the year 2009.
The quick ratio of the company was sound till the end of 2007 when it was 1.21 times which
gradually decreased down to 0.92 times by the end of year 2009. The main causes of this decline
was reduction in trade & other payable, cash & equivalents and commodity contracts and
derivative financial instruments on one hand and significant increase in the short-term
borrowings from £275 million in 2007 to £717 million in 2009. Again it was better than industry

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average of 0.42 times as well as National Grid (0.72 times) and almost equal with Centrica (0.99
times). This means that BG Group was able to pay its short-term liabilities out of its most liquid
assets.
By measuring the cash ratios the creditors analyze the amount to debt given to consumers. As
seen before due to the lower cash & equivalents and higher short-term liabilities the cash ratios
also remained very lower which was less than 1 throughout the five years. The similar results
were noticed for the comparable companies of the same industry.
Working capital is also important to see the operational efficiency of the company. Working
capital of BG Group remained very low level which signifies that the group is not efficient to
pay its current liabilities out of its available assets.

Figure 13: BG’s liquidity ratio comparison with competitors (2009-2010)

SOLVENCY (LEVERAGE) RATIOS

The following data represents the solvency position of BG Group Plc. during the last five years.
Table 10: Solvency ratios of BG Group

Solvency measures how efficient a company is to meet its long-term obligations to its creditors.
The debt-equity ratio of 3:1 is generally considered as ideal. BG Group’s debt-equity ratio was
increasing till the end of year 2007 (0.52 times or 52%) but gradually it fell down to 0.45 in 2009
implying that the group’s was efficient to finance its assets through its own capital rather than

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dependence on debt. Centrica and National Grid experienced higher debt-equity ratio implying
that they had very high dependence on borrowings.
The debt ratio of BG Group had also reduced down slightly from 0.71 in 2007 to 0.61 in 2009
implying less dependence on debt. This ratio was better than National Grid (0.89). However,
Centrica’s debt ratio (0.67) was almost similar to BG Group in 2009.
Total debt to capital ratio of BG Group declined marginally to 0.83 in 2009 which means that the
83% of the group’s capital structure was financed with long-term debt and remaining 17% from
the current liabilities. This was because of the increase in the amount of short-term liabilities in
2009 by almost 63% as compare to 2008 when only 6% of the group’s capital was financed by
short-term liabilities. This situation was better than the competitors Centrica and National Grid
which have higher debt to total capital ratio.

We should also analyse the percentage of group’s assets that were supported by debt financing
and for this we will look at total debt to total asset ratio. This ratio fluctuated between 0.30 and
0.35 over the last five years and was better than those of Centrica and National Grid. Similar was
the situation with debt to total equity where the group showed better results than its competitors.

Figure 14: BG’s solvency ratio comparison with competitors (2009-2010)

These ratios were better than group’s competitors Centrica and National Grid as they
experienced higher level of solvency ratios.

EFFICIENCY (ACTIVITY) RATIOS

The following data represents the efficiency position of BG Group Plc. during the last five years.
Table 11: Efficiency ratios of BG Group

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From the table above it can be analyzed that BG Group’s inventory turnover decreased every
year. By the end of year 2009, it fell down by 50% to 19.68 (39.52 in 2008) mainly because of
lower international oil and gas prices which effected the sales revenue. The competitors
experienced better results in terms of higher inventory turnover which shows BG Group was
unsuccessful in inventory management practices.
The group’s receivable turnover, however, remained constant throughout but was lower than its
competitors Centrica and National Grid. The group’s efficiency in collecting its receivables
improved till 2007 when the days receivables outstanding reduced by 9 days from 108 days in
2005 to 99 days in 2007 and then increased by 5 days in 2009. The payment made to suppliers by
BG Group remained on an average 3 times in a year over the desired periods. The competitors
however make early payments to their suppliers which indicate that BG Group is in efficient in
building sound relationship with its suppliers.
The group’s total asset turnover declined marginally to 0.39 over the last five years but it was
better than industry average of 0.52 and that of national Grid 0.32 and nearly similar with
Centrica. Fixed asset turnover declined marginally to 0.48 in 2009 but was better than National
Grid 0.36. On the other hand current asset turnover declined significantly due to fall in current
assets in 2009 and this ratio was unsatisfactory as compare to the competitors.

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Figure 15: BG’s efficiency ratio comparison with competitors (2009-2010)

MANAGEMENT (PRICE) RATIOS

The below table represents the management ratios of BG Group from 2005-2009:-
Table 12: Management ratios ratios of BG Group

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Figure 16: BG’s management ratio comparison with competitors (2009-2010)

The table above shows that all price ratios of BG Group are better than its competitors and
industry averages in 2009. The EPS of BG group was 64.50 pence as compare to its competitors
because of higher net income generation. BG also experienced better P/E ratio (19.64) than the
industry average and its competitors. The price to cash flow ratio although remained lower than
industry averages but was better than the competitors. Moreover, BG’s price to book ratio was
also noticeably higher than its industry average implying the higher growth of company’s shares.
The last trading price of BG group’s share was 1267 pence which was also higher than the
industry’s average share price and the price of competitor companies.

STOCK BETA ANALYSIS

Source: http://finance.yahoo.com/q?s=BG.L

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Source- http://finance.yahoo.com/q/bc?s=BG.L&t=my&l=on&z=l&q=l&c=
From the above chart we analyze the stock performance of BG group, which is listed under
London Stock Exchange with total market cap of £43,065.73 million (as on Dec 6th, 2010-
Reuters) under the symbol of BG.L. The chart signifies rise and fall in prices of stock and the
percentage variations duration last 5 years. As per the diagram BG group stock price was highest
between years 2008-2009, however there was a rise in wholesale gas prices due to which BG
group gained a price hike 35% in year 2008. Slowly due to recession prices of gas fell down
between years 2009-2010. As we see in diagram there is a cliff being developed? Since
comparing the BG group stock prices with S&P 500 during last 5 yrs. BG group position is quite
better after economic downturn and compared to its peers.

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Figure 17: BG’s stock beta comparison with competitors

According to financial terms the Beta of a stock is a figure showing in relationship to its return in
accordance of financial market. Considering the above figure, graph reflects that BG group has
Beta of 0.368. In CAPM (Capital Asset Pricing Model) such figures suggest that BG group
security price is less volatile compare to market price. Since it concludes that BG group stocks
are less risky but at the same time the return to investors will also be lower.

Source: http://finance.yahoo.com/q/bc?t=my&s=BG.L&l=on&z=l&q=l&c=CNA.L%2CNG.L&c=%5EGSPC
Graph Comparison between BG Group Plc (BG.L), Centrica Plc (CNA.L), National Grid Plc (NG.L) and S&P 500

NON-FINANCIAL ANALYSIS
SWOT ANALYSIS

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Some of the strengths, weaknesses, opportunities and threats of BG Group are mentioned
below:-
Table 13: SWOT analysis of BG Group.

STRENGTHS: -
1. BG Group is one of the leaders in oil and gas supply within UK and with a largest
customer base at international level.
2. Brand Power – BG Group has gained its image in terms of loyalty and trust in Oil & Gas
market.
3. Diversified service portfolio in exploration & production, liquefied natural gas,
transmission & distribution and power generation.
4. Strong Financial/resources position.

WEAKNESS:-
1. Lack of communication due to weak organization culture – Weak organization culture
develops communication gap in management which leads to mishap at production sites.
2. Weak communication strategy – Strategy developed by BG Group is less communicating
between higher and lower management which give rise to fluctuation in production and
supply.

OPPORTUNITIES:-

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1. BG group has developed a position in countries like Brazil, India, USA etc. This strategy
will help BG in developing its business in different economies.
2. It is predicted that there will be increase in demand more by 20% in 2014 and this will
further increase the level of demand to 130 billion cubic meters in 2020. The company
should grab this opportunity from such rising demand.
3. There is shift in focus for renewable energy due to environmental concern and price hike.

THREATS: -
1. Political upheaval in business operation of major markets.
2. Emerging threat – N Power, Scottish Power, EDF Energy and other utility supplier
companies.
3. Natural gas reserves are declining.
4. Ecological/Environmental laws & policy on wellbeing & safety may have an effect on
the company’s operations.
5. Profit fluctuates as the currency values differ from country to country.

CONCLUSION
After analyzing the financial statements of BG Group we emphasize that the company has a
strong position in oil and gas industry as can be seen from its superior performance over its peer
competitors. The company has buildup strong reserves and resources through its LNG business
by continuous involvement in mergers and acquisition of business entities in some of the world’s
major markets including USA, Brazil, India, Australia etc. In spite of increasing international
commodity prices of oil and gas the company has achieved growth in all the business sectors
over the last five years.
By analyzing different ratios and common-size statements, it can be said that mostly ratios are
strong & encouraging in comparison with its competitors. However company’s performance as
compare to last year is not satisfactory. Profitability of BG Group remained lower. The net profit
margin declined by 29.37% in 2009 due to global economic downturn which reduced the
demand for energy. ROE, ROA and ROCE were all lower compare to 2008. This directly
affected the liquidity position of the company in 2009. Most of the ratios are better than industry
average and competitors. Efficiency ratios are quite better implying the company has adopted
better inventory management practices. The company’s long-term solvency position was also
satisfactory which means company financed its assets mostly by its own capital rather than debt.
The EPS and price to earnings ratios are much better than the peer competitors in the same
industry. Again the performance compared to year 2008 was unsatisfactory where EPS reduced

26 | P a g e
 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

from 93.4 pence in 2008 to 64.5 pence in 2009 mainly because of the effects of the global
economic downturn on world’s major economies which affected the company’s earnings.
However, from the shareholder’s point of view, BG’s stock beta is 0.368 which implies less risk
on investing in its stock.
Moreover, the results of third quarter of year 2010 states a better position in all respects due to
improvements in the market economy. The fair result will only be concluded once the final
results of 2010 will be analyzed in comparison to those of year 2009. The consensus
recommendation of BG’s share is ‘outperform’ which suggests higher earning prospect in the
years to come.
Thus, after all the facts and evidences based on the comprehensive financial analysis presented in
this report it is our strong recommendation for investors to buy BG shares because of the stable
outlook anticipates increased on-going growth, diversity, low production costs and high reserves
of products.

Source: www.reuters.com
Table 14: Concensus recommendation of BG’s stock

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

References:-
Oil & Gas journal (2009), Available: http://www.ogj.com/index.html. Last accessed 30th Nov
2010.

Stock Analysis (2009), Available: http://www.investopedia.co. Last accessed 30th Nov 2010.

BG group Key Statistics (2010). Available: http://uk.finance.yahoo.com/q/ks?s=BG.L. Last

accessed 01 Dec 2010.

Annual Report 2009/10. Available: http://nationalgrid.com. Last accessed 01 Dec 2010.

Annual Report 2009/10. Available: http://www.centrica.com. Last accessed 02 Dec 2010.

Annual Reports and Accounts 2009, Available:

http://www.bggroup.com/InvestorRelations/Reports/ara2009/Pages/default.aspx. Last accessed
25th Nov 2010.

BG Group Company Financial Information. Available: http://www.advfn.com/p.php?

pid=financials&symbol=BG. Last accessed 26th Nov 2010.

Ratio Data, BG GROUP PLC. Available:

http://investing.businessweek.com/businessweek/research/stocks/financials/ratios.asp?
ticker=BG/:LN. Last accessed 27th Nov 2010.

BG Group Plc. Financials. Available: http://uk.reuters.com/business/quotes/financialHighlights?

symbol=BG.L. Last accessed 24th Nov 2010.

Market Data BG Group Plc.. Available: http://investing.thisismoney.co.uk/security?

csi=10017&action=financials&sub_action=fundamentals&username=&ac= Last accessed 24th
Nov 2010.

Financial Summary BG group Plc. Available: http://finance.yahoo.com/q?s=bg.l&ql=1. Last

accessed 28th Nov 2010.

BG Group Market Data. Available: http://www.bloomberg.com. Last accessed 01st Dec 2010.

"BG Group succeeds in Pure Enegy bid", 2009, TCE: The Chemical Engineer, , no. 814, pp. 9-9.

"On the Move:Capitalia, Siemens, BG PLC", 2007, BusinessWeek Online, , pp. 23-23.

"BG Group PLC", 2005, Wall Street Journal - Eastern Edition, vol. 245, no. 10, pp. B4.

28 | P a g e
 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

BIRRANE, A. & SPARSHOTT, J. 2008, "BG Group Drops Bid for Origin Energy", Wall Street
Journal - Eastern Edition, vol. 252, no. 60, pp. B3.

REUTERS 1990, "COMPANY NEWS; British Gas Granted Takeover Approval", New York
Times, , pp. 3.

Reuters 1988, "COMPANY NEWS; British Gas Bid", New York Times, , pp. 39.

Appendices:-
Appendix 1: Beta Calculations:
Table 1 Table 2 - Returns
Month Centric Nationa Market Stock
S&P BG a l Grid Index Price
1248.2 Centr National
1 9 574.5 254.75 568.5 S&P BG ica Grid
1280.0
2 8 635 266.75 575.5 2.55% 10.53% 4.71% 1.23%
1280.6
3 6 667.5 290.5 600 0.05% 5.12% 8.90% 4.26%
1294.8
4 7 719.5 281.5 572.5 1.11% 7.79% -3.10% -4.58%
1310.6
5 1 737 298.75 575.5 1.22% 2.43% 6.13% 0.52%
1270.0
6 9 710 278.5 606.5 -3.09% -3.66% -6.78% 5.39%

7 1270.2 722.5 285.25 585 0.01% 1.76% 2.42% -3.54%

1276.6
8 6 720 293 609.5 0.51% -0.35% 2.72% 4.19%
1303.8
9 2 686.5 295 638 2.13% -4.65% 0.68% 4.68%
1 1335.8
0 5 649 325.25 667.5 2.46% -5.46% 10.25% 4.62%
1 1377.9
1 4 695.5 331.25 670 3.15% 7.16% 1.84% 0.37%
1 1400.6
2 3 684.5 330.75 687.5 1.65% -1.58% -0.15% 2.61%
1
3 1418.3 693 354.5 737 1.26% 1.24% 7.18% 7.20%

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

1 1438.2
4 4 668.5 371 768 1.41% -3.54% 4.65% 4.21%
1 1406.8
5 2 692 374.25 763 -2.18% 3.52% 0.88% -0.65%
1 1420.8
6 6 733 386.5 797.5 1.00% 5.92% 3.27% 4.52%
1 1482.3
7 7 725.5 388 786.5 4.33% -1.02% 0.39% -1.38%
1 1530.6
8 2 772 383.25 783 3.25% 6.41% -1.22% -0.45%
1 1503.3
9 5 821.5 388.5 738 -1.78% 6.41% 1.37% -5.75%
2 1455.2
0 7 808 360.25 702.5 -3.20% -1.64% -7.27% -4.81%
2 1473.9
1 9 794 385.5 742.5 1.29% -1.73% 7.01% 5.69%
2 1531.3
2 8 846 380.5 784 3.89% 6.55% -1.30% 5.59%
2 1549.3
3 8 889.5 368.75 801.5 1.18% 5.14% -3.09% 2.23%
2 1481.1
4 4 1018 364 821.5 -4.40% 14.45% -1.29% 2.50%
2 1468.3
5 6 1150 358.75 834 -0.86% 12.97% -1.44% 1.52%
2 1378.5
6 5 1100 331.75 774 -6.12% -4.35% -7.53% -7.19%
2 1330.6
7 3 1192 323 733.5 -3.48% 8.36% -2.64% -5.23%
2
8 1322.7 1167 298.25 691.5 -0.60% -2.10% -7.66% -5.73%
2 1385.5
9 9 1231 294 700.5 4.75% 5.48% -1.42% 1.30%
3 1400.3
0 8 1266 293.75 746 1.07% 2.84% -0.09% 6.50%
3
1 1280 1307 310.25 660.5 -8.60% 3.24% 5.62% -11.46%
3 1267.3 -
2 8 1146 314.75 668 -0.99% 12.32% 1.45% 1.14%
3 1282.8
3 3 1219 327.25 714.5 1.22% 6.37% 3.97% 6.96%
3 1166.3 -
4 6 1013 314 714 -9.08% 16.90% -4.05% -0.07%
3 -
5 968.75 913 304.5 703.5 16.94% -9.87% -3.03% -1.47%
3
6 896.24 920 236.5 676.5 -7.48% 0.77% -22.33% -3.84%
3
7 903.25 957 266 684 0.78% 4.02% 12.47% 1.11%
3
8 825.88 950.5 258 648 -8.57% -0.68% -3.01% -5.26%

30 | P a g e
 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

3 -
9 735.09 1005 270.5 626.5 10.99% 5.73% 4.84% -3.32%
4
0 797.87 1055 227.75 535.5 8.54% 4.98% -15.80% -14.53%
4
1 872.81 1093 227 564.5 9.39% 3.60% -0.33% 5.42%
4
2 919.14 1128 246 598.5 5.31% 3.20% 8.37% 6.02%
4
3 919.32 1018 223 547.5 0.02% -9.75% -9.35% -8.52%
4
4 987.48 999.4 220.34 558.5 7.41% -1.83% -1.19% 2.01%
4 1020.6
5 2 1017 251.9 592.5 3.36% 1.76% 14.32% 6.09%
4 1057.0
6 8 1087 251.6 604 3.57% 6.88% -0.12% 1.94%
4 1036.1
7 9 1055 248.3 606.5 -1.98% -2.94% -1.31% 0.41%
4 1095.6
8 3 1103 254.6 660.5 5.74% 4.55% 2.54% 8.90%
4
9 1115.1 1122 281.1 679 1.78% 1.72% 10.41% 2.80%
5 1073.8 1159.
0 7 5 269.9 631 -3.70% 3.34% -3.98% -7.07%
5 1104.4
1 9 1145 279.7 652 2.85% -1.25% 3.63% 3.33%
5 1169.4 1140.
2 3 5 293.9 641.5 5.88% -0.39% 5.08% -1.61%
5 1186.6
3 9 1113 294.6 629 1.48% -2.41% 0.24% -1.95%
5 1089.4
4 1 1061 274.8 499.3 -8.20% -4.67% -6.72% -20.62%
5 1030.7
5 1 1006 296.7 491 -5.39% -5.18% 7.97% -1.66%
5 1021.
6 1101.6 5 303.9 509.5 6.88% 1.54% 2.43% 3.77%
5 1049.3 1049.
7 3 5 325.3 549 -4.74% 2.74% 7.04% 7.75%
5 1118.
8 1141.2 5 323.5 540 8.76% 6.57% -0.55% -1.64%
5 1183.2 1215.
9 6 5 332.2 590 3.69% 8.67% 2.69% 9.26%
6 1180.5 1161.
0 5 5 307.1 568 -0.23% -4.44% -7.56% -3.73%
6 1206.0
1 7 1189 312.3 551.5 2.16% 2.37% 1.69% -2.90%

Centric Nationa
S&P BG a l Grid

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

1.00
0 0.368 0.26 0.425

Appendix 2: Ratio calculations of BG Group

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 FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

BG Group Plc.
Liquidity Analysis
31- 31- 31- 31- 31-
Dec-09 Dec-08 Dec-07 Dec-06 Dec-05
Current Ratio (Current assets/ Current Liabilities) 1.01 1.05 1.30 1.47 1.35
Quick Ratio (Current assets-Inventories/ Current Liabilities) 0.92 0.97 1.21 1.38 1.28
Cash Ratio (Cash & equivalents + other financial instruments/ Current 0.33 0.40 0.61 0.72 0.61
Liabilities)
Cash & Equivalent to Current assets( Cash, equivalent & financial/CA) 32.73% 37.59% 46.79% 49.24% 45.08%
Working Capital Ratio (Current assets- current liabilities/ total assets) 0.24% 1.41% 7.67% 10.40% 7.55%
Cash Flow from Operations to Total Debt (CFO/ total debt)
Profitability Analysis
31- 31- 31- 31- 31-
Dec-09 Dec-08 Dec-07 Dec-06 Dec-05
Operating Margin (Profit before tax/Revenue) 37.81% 43.51% 36.65% 46.03% 44.62%
Net Profit Margin (Profits attributable to shareholders/Revenue) 21.23% 24.88% 21.06% 24.93% 27.17%
ROA (Profits attributable to shareholders/ Total assets) 8.25% 12.51% 11.35% 14.02% 13.14%
ROE (Net profit after tax/ Shareholders equity) 15.96% 24.69% 24.91% 28.67% 25.37%
Pre-tax margin (Net profit before tax/ Sales) 37.81% 43.51% 36.65% 46.03% 44.62%
ROCE (Net profit before tax/(total assets -current liabilities) 18.27% 29.54% 26.41% 33.29% 27.53%
ROI (Profits attributable to shareholders/LT debt+ equity) 10.26% 16.90% 15.17% 18.03% 16.77%
Activity Analysis/ Efficiency Ratio/Asset utilization/Operating ratio
31- 31- 31- 31- 31-
Dec-09 Dec-08 Dec-07 Dec-06 Dec-05
Inventory Turnover (Revenue/ opening inventories+ ending 19.68 26.62 26.36 33.04 39.52
inventory/2)
Receivables Turnover (Net credit sales/ accounts receivables) 3.49 3.48 3.67 3.85 3.35
Receivables Turnover days (365/receivables turnover) 104.58 104.88 99.45 94.8 108.95
Payables turnover (Net credit sales/accounts payables) 3.94 3.46 3.68 4.41 4.29
Payables turnover days (365/payables turn over) 92.63 105.50 99.10 82.76 85.07
Current asset turnover (Revenue/ average current assets) 1.69 2.11 1.80 1.90 2.24
Fixed Assed Turnover (Sales/ Fixed assets) 0.48 0.69 0.80 0.84 0.68
Total Asset Turnover (Revenue/ total assets) 0.39 0.50 0.54 0.56 0.48

Leverage Analysis/Long term solvency position

31- 31- 31- 31- 31-
Dec-09 Dec-08 Dec-07 Dec-06 Dec-05
Total Debt to total Capital (Total debt/ long term debt + shareholders 0.56 0.65 0.70 0.63 0.59
equity)
Total Debt to Total Assets or gross gearing (Total debt/ total assets) 0.45 0.48 0.52 0.49 0.46
Total Debt to Total Equity (Total debt/ total shareholder’s equity) 0.83 0.94 1.09 0.96 0.85

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FINANCIAL STATEMENT ANALYSIS-BG GROUP PLC.

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