To be honest, I was a little bit disappointed when I saw the 3D-graph I generated for Royal Dutch Shell and BG-group. As discussed in the previous post, this acquisition was completed and the 2016 Annual Report presented the consolidated numbers. Unlike some other mergers & acquisitions this one was not too recent and not too old either.
Why should I be disappointed then? Well, it turns out BG-group was much, much smaller than Royal Dutch Shell. Of course I knew, and although I saw the numbers I didn’t fully realise that the BG-group’s revenue was only about 6% of the revenue of Royal Dutch Shell. Maybe the profit was misleading me, because in 2015 the profit of the BG-group was about 77% of Shell’s profit, so almost the same in absolute values. But then equity and total assets were very different again – BG showing only 1/5th or 1/6th of Shell’s values. Last time I presented a piece of a spreadsheet, now the format of the input-file is below:
A warning first: there is a risk whem looking at the graph. It is a 3D-graph, but it doesn’t mean the volume is meaningful. The three dimensions should be compared separately between the companies, although the relative sizes can be compared within one “building”.
E.g. the shape of the floor indicates a kind of gearing ratio (here Equity/Total Assets, but Equity could be replaced by Liabilities easily to get other ratios – of course then then those values have to be replaced for all companies and all years). A company about ten times smaller than another would be smaller in all three dimensions, but this doesn’t mean it’s 1000 times smaller as the volume would suggest.
Looking at the front-side, we see a huge difference between the revenue-levels.
However, the profit (the green roof) is more or less of the same size in 2015. This means the absolute values of the profits of both companies were not very different! In this graph (just double-click one of the pictures to see the real 3D-graph), the four values of both companies were added for the years before the year of the acquisition. This means the sum of the revenue, the sum of the profit, the sum of the equity and the sum of the total assets was taken for 2014 and 2015. Formally the same was done for 2016, but then Royal Dutch Shell published the consolidated values and the values for the BG-group became all zero, so for 2016 the combination is equal to Royal Dutch Shell.
Of course we cannot simply add the values, because mergers and acquisitions usually lead to an outflow of money to shareholders. Apart from this, it was the period in which the oil-price dropped and put a lot of pressure at the results. Still it’s interesting to show a combined set of values. And although Royal Dutch Shell is more like Goliath, with BG-group being more like David, the profit was an interesting part of the comparison.