Analysis of Financial Statements
During the 2010 fiscal year, the oil and gas market was characterized by the rise in demand for petroleum and gas products, especially in emerging nation, brought about by global economic growth. During this period, prices for crude oil increased to an average US$80/b. What’s more, prices for spot gas increased, particularly in Asia and Europe. Following the dismal performance recorded in 2009, refining margins increased up to an average US$27/t in Europe. The demand for polymers also increased in all consuming regions resulting in increased petrochemical margins (TOTAL, 2010, p.52).
On the basis of this background, the adjusted net income for TOTAL was €10.3 billion in 2010, reflecting a 32% increase compared to the previous year. The increment was attributed to improved market environment as well as TOTAL’s sound performance, especially with production improving in the upstream division by 4% compared to the previous year (2009). In 2010, the upstream division’s adjusted net operating income rose by 23% to stay at €8.6 billion compared to the previous year. This growth was attributed to enhanced refining margins as well as efforts by the Marketing division. In addition, the Chemicals division’s earnings rose by three-fold in 2010 compared to the previous period. The remarkable increment was attributed to exceptional performance of Specialty Chemicals as well as improvements in Petrochemicals environment (TOTAL, 2010, p.52).
Given the remarkable growth in TOTAL’s cash flow, the Group buttressed its balance sheet with a 22% gearing ratio during the FYE2010 compared to 27% in the previous period. In 2010, TOTAL increased its focus on safety and environment as part of its investments and operations in its entire business operations. For example, the Group refocused its attention on domestic industrial plants and corporate social responsibility (CSR) for its projects executed in various countries (TOTAL, 2010, p.52).
Sales and Operating Income
During the fiscal year 2010, TOTAL’s consolidated sales rose by 21% to €159,269 million in comparison to €131,327 million achieved in FYE2009. The average Bent price (in the oil market) increased by 29% (compared to 2009) to US$79.5/b during the 2010 fiscal period. In addition, the average gas price was stable during this period. What’s more, the European refining margin indicator (ERMI) increased to US$27.4/t during FYE2010 compared to US$17.8/t in the previous fiscal period. Consequently, the adjusted operating income (in the business divisions) was €19,797 million in 2010, reflecting a 40% increment compared to FYE2009.
The effective tax rate (for the business divisions) was 56% in FYE2010 compared to 55% for the previous financial year. In addition, the adjusted net operating income (from the business divisions) rose by 40% to €10,622 million in FYE2010 in comparison to €7,607 million in FYE2009 (TOTAL, 2010, p.54).
Net Income Share
In 2010, TOTAL’s adjusted net income rose to €10, 288 million, up from €7,784 million achieved in 2009. This represents a 32% increase. TOTAL no longer accounts for its stake in Sanofi-Aventis as an equity partner. The contribution from Sanofi-Aventis to TOTAL’s adjusted net income in 2009 and 2010 was €786 million and €290 million respectively. The adjusted net income of TOTAL would have risen by 43% (in Euros) if the impact of Sanofi-Aventis’ contribution was excluded. The net income-Group share- for TOTAL was €10,571 million in FYE2010 in comparison to €8,447 million achieved in FYE2009.
What’s more, the total number of fully-diluted share during the FYE2010 was 2,249.3 million in comparison to 2,243.7 million during the FYE2009. In addition, the Group’s adjusted fully-diluted earnings per share (EPS) for FYE2010 increased by 32% to €4.58 (on the basis of 2,244.5 million weighted average shares) compared to €3.48 for the FYE2009 (TOTAL, 2010, p.54).
Investments
In the FYE2010, the Group’s investments were €11.9 billion (consisting of net investments in equity partners and excluding acquisitions) in comparison to €12.3 billion for the FYE2009. In addition, the total assets acquired by the Group were €3.5 billion in 2010. These acquisitions consist of assets procured from UTS in Canada, Barnett Shale (in the US), an enlarged stake in the UK’s Laggan Tormore blocks as well as a 20% stake in the Australia’s GLNG project.
The total number of assets disposed by the Group in 2010 amounted to €3.5 billion. The disposed assets mainly comprise of sale of the Mapa Spontex unit in the Chemical division, the 5% stake in Block 31 in Angola, the Valhall and Hod fields in Norway as well as the sale of Sanofi Aventis stake. What’s more, in FYE2010, the Group’s net investments rose to €12.0 billion compared to €10.3 billion achieved in FYE2009. This reflects a 16% increment in the net investments of the Group (TOTAL, 2010, p.54).
Profitability
The Group’s return on average capital employed (ROACE) for the FYE2010 was 16% while the ROACE for the business divisions was 17%. In the FYE2009 the ROACE for the Group and business divisions was 13%. However, during the FYE2008, the ROACE for the Group and business divisions were 26% and 28% respectively. Return on equity (ROE) for the FYE2010 was 19% more compared to the previous financial period (TOTAL, 2010, p.54).
Reporting Standards used in the Preparation of Financial Report
The consolidated financial statements and report are prepared according to International financial reporting standards (IFRS), adopted for use in the European Union as well as in accordance with IFRS as provided by the International Accounting Standards Board (IASB) effective from December 31, 2010. The principles of accounting employed in Consolidated Financial Statements (For the period ending December 31st, 2010) were similar to those used in the previous financial period (apart from the adjustment and interpretation of IFRS which were obligatory for the periods starting after January 1st, 2010).
What’s more, starting from January 1st, 2010, jointly-owned ventures were consolidated via the equity method as explicitly stated in the alternative method of IAS 31 Interest in Joint Ventures. Prior to this period, the jointly-owned ventures were consolidated through proportionate consolidation method (TOTAL, 2010, p.172).
Under the Principles of Consolidation, subsidiaries that are directly managed by the Group or managed indirectly through other consolidated subsidiaries are wholly consolidated. What’s more, investments in jointly-controlled ventures are consolidated via equity method. Thus, the preparation of financial statements and reports (in harmony with IFRS) demands the management to formulate assumptions and estimations that affect the disclosed amounts of liabilities and assets at the date of preparation of the financial statements and report for the relevant financial period. The management assesses these assumptions and estimations on a continuous basis by making reference to previous experiences as well as other aspects deemed as rational benchmarks that can be employed in appraising assets and liabilities (TOTAL, 2010, p.172).
Reference
TOTAL. (2010). Registration Document 2010. Web.