BP 2013 Annual Report Download - page 27

Strategic report
BP Annual Report and Form 20-F 2013 23
Group performance and outlook
Financial performance
$ million
2013 2012 2011
Profit before interest and taxation 31,769 19,769 39,815
Finance costs and net finance
expense relating to pensions and
other post-retirement benefits (1,548) (1,638) (1,587)
Taxation (6,463)(6,880) (12,619)
Non-controlling interests (307) (234) (397)
Profit for the yeara23,451 11,017 25,212
Inventory holding (gains) losses, net
of taxb230 411 (1,800)
Replacement cost profitc23,681 11,428 23,412
Net charge (credit) for non-operating
itemsd, net of tax (10,533)5,298 (2,195)
Net (favourable) unfavourable impact
of fair value accounting effectsd,
net of tax 280 345 (47)
Underlying replacement cost profitc13,428 17,071 21,170
Capital expenditure and acquisitions 36,612 25,204 31,959
Segment RC profit (loss) before interest and tax ($ billion)
Group RC profit (loss) before interest and tax
5
(5)
25
(25)
(35)
(45)
15
(15)
35
45
2009 2010 2011 2012 2013
Upstream
Other businesses
and corporate
Rosneft
Unrealized profit
in inventory
Gulf of Mexico
oil spill
TNK-BP
Downstream
Profit for the year ended 31 December 2013 was $23,451 million. After
adjusting for $230 million in respect of inventory holding losses and their
associated tax effect, replacement cost (RC) profit was $23,681 million.
After further adjusting for a net credit of $10,533 million for non-operating
items and unfavourable fair value accounting effects (relative to
management’s measure of performance) of $280 million, both net of tax,
underlying RC profit was $13,428 million.
Non-operating items in 2013, on a pre-tax basis, were mainly relating to the
$12.5-billion gain on disposal of TNK-BP partially offset by an $845-million
write-off attributable to block BM-CAL-13 offshore Brazil as a result of the
Pitanga exploration well not encountering commercial quantities of oil or
gas, impairment charges and further charges associated with the Gulf of
Mexico oil spill. More information on non-operating items, and fair value
accounting effects, can be found on page 237. See Gulf of Mexico oil spill
on page 38 and Financial statements – Note 2 for further information on
the impact of the Gulf of Mexico oil spill on BP’s financial results.
For the year ended 31 December 2012, profit was $11,017 million, RC profit
was $11,428 million and underlying RC profit was $17,071 million. There
was a net post-tax charge of $5,298 million for non-operating items, which
included a $5.0-billion pre-tax charge relating to the Gulf of Mexico oil spill.
Compared with 2012, underlying RC profit in 2013 was impacted by the
absence of equity-accounted earnings from TNK-BP and lower earnings
from both Downstream and Upstream, partially offset by the equity-
accounted earnings from Rosneft from 21 March 2013 (when sale and
purchase agreements with Rosneft and Rosneftegaz completed).
For the year ended 31 December 2011, profit was $25,212 million, RC profit
was $23,412 million and underlying RC profit was $21,170 million. There
was a net post-tax credit for non-operating items of $2,195 million, which
included a $3.8-billion pre-tax credit relating to the Gulf of Mexico oil spill.
Compared with 2011, underlying RC profit in 2012 was impacted by
significantly lower earnings from Upstream and the absence of equity-
accounted earnings from TNK-BP from 22 October 2012 (when our
investment was reclassified as an asset held for sale, as required under
IFRS), partially offset by improved earnings from Downstream.
See Upstream on page 25, Downstream on page 31, Rosneft on page 35
and Other businesses and corporate on page 37 for further information on
segment results.
Finance costs and net finance expense relating to pensions and other
post-retirement benefits
Finance costs comprise interest payable less amounts capitalized, and
interest accretion on provisions and long-term other payables.
Net finance expense relating to pensions and other post-retirement
benefits in 2013 was $480 million (2012 $566 million, 2011 $400 million).
In 2013, we adopted the revised version of IAS 19 ‘Employee Benefits’,
under which we apply the same expected rate of return on plan assets
as we used to discount our pension liabilities. Financial information for
prior periods has been restated – see Financial statements – Note 1 for
further information.
Taxation
The charge for income taxes in 2013 was $6,463 million (2012 $6,880
million, 2011 $12,619 million). The effective tax rate was 21% in 2013 (2012
38%, 2011 33%). The decrease in the effective tax rate in 2013 compared
with 2012 primarily relates to the gain on disposal of TNK-BP in 2013 for
which there was no corresponding tax charge. The increase in the effective
tax rate in 2012 compared with 2011 primarily reflects the impact of the
provision for the settlement with the US government relating to the Gulf of
Mexico oil spill, which is not tax deductible.
a Profit attributable to BP shareholders.
b Inventory holding gains and losses represent the difference between the cost of sales calculated
using the average cost to BP of supplies acquired during the year and the cost of sales calculated
on the first-in first-out (FIFO) method, after adjusting for any changes in provisions where the net
realizable value of the inventory is lower than its cost. BP’s management believes it is helpful to
disclose this information. An analysis of inventory holding gains and losses by segment is shown
in Financial statements – Note 7 and further information on inventory holding gains and losses is
provided on page 269.
c Replacement cost (RC) profit or loss reflects the replacement cost of supplies and is arrived at by
excluding inventory holding gains and losses from profit or loss. RC profit or loss is the measure
of profit or loss for each operating segment that is required to be disclosed under International
Financial Reporting Standards (IFRS). RC profit or loss for the group is not a recognized GAAP
measure. Underlying RC profit or loss is RC profit or loss after adjusting for non-operating items
and fair value accounting effects. Underlying RC profit or loss and fair value accounting effects
are not recognized GAAP measures. For further information on RC profit or loss and underlying
RC profit or loss, see Certain definitions on page 269.
d Non-operating items are charges and credits arising in consolidated entities and in TNK-BP and
Rosneft that are included in the financial statements and that BP discloses separately because it
considers such disclosures to be meaningful and relevant to investors. The main categories of
non-operating items included here are: impairments; gains and losses on sale of businesses and
fixed assets; environmental remediation costs; restructuring, integration and rationalization costs;
and changes in the fair value of embedded derivatives. Fair value accounting effects are
non-GAAP adjustments to our IFRS profit relating to certain physical inventories, pipelines and
storage capacity. Management uses a fair-value basis to value these items which, under IFRS,
are accounted for on an accruals basis with the exception of trading inventories, which are valued
using spot prices. The adjustments have the effect of aligning the valuation basis of the physical
positions with that of the derivative instruments, which are required to be fair valued under IFRS,
in order to provide a more representative view of the ultimate economic value. See page 238 and
Certain definitions on page 269 for more information.