| Preview of Income Statement, 1st quarter of 1997 |
| 1.- INTRODUCTION Repsol’s net income for the first quarter of 1997 amounted to 31,037 million pesetas, in comparison with 35,406 million pesetas for the same period a year earlier. Operating income, at 52,951 million pesetas,was, however, practically the same as in 1996 in MIFO terms, and 5.1% higher in LIFO terms. The quality of Repsol’s performance is best shown by the 21.6% rise obtained in net cash-flow, to reach a figure of 80,472 million pesetas, in comparison with 66,186 million pesetas for the same period in 1996. This 14,286 million pesetas improvement in net cash flow may be broken down into 1,700 million pesetas of tax savings resulting from the revaluation of assets that took place at the end of 1996, 4,340 million pesetas from new activities in Latin America, and the remainder from a good performance this quarter by exploration and production, refining and marketing, and chemicals. In 1997, operating income included higher amortizations as a result of asset revaluations amounting to 4,910 million pesetas. This means that, if this effect were excluded, operating income would have risen by 8.9% in this quarter, attaining a level of 57,861 million pesetas. This figure of 57,861 million pesetas is even more important, if we consider that a freeze on LPG prices over the period cut back operating figures by 11,900 million pesetas, forcing Repsol Butano to operate at a loss. Unusually warm weather in February and March also had an adverse effect, leading Gas Natural to register a fall of 13.9% in operating income, in spite of having gained 200,000 new residential customers since the first quarter of 1996, and achieving 19.3% higher sales to the industrial sector. Indeed, mild temperatures may be estimated to have cost Repsol Butano and Gas Natural together some 4,500 million pesetas. Devaluation of the peseta against the dollar boosted income from exploration and refining, whereas our currency’s strength against the deutschmark (at an average exchange rate of 84.5 pesetas per DM) did not damage income from chemicals, where the budgeted exchange rate of 86 pesetas per DM was covered by a derivative product. The generation of funds by the company has favoured its financial structure, for net debt at the end of the quarter was 450,860 million pesetas, as opposed to the figure of 381,545 million pesetas registered at the close of the 1996 financial year. When evaluating this rise in net debt, the higher dollar exchange rate (increasing debt by 27,700 million pesetas) and the acquisition of a 45% stake in Pluspetrol (adding a further 51,400 million pesetas to this caption, by way of cost of acquisition plus integration of 45% of corporate debt) should be taken into account. Apart from the above, 23,700 million pesetas were also paid out this quarter as dividend against the 1996 financial year. Outstanding events in this quarter The first quarter of 1997 not only featured good income figures, especially when it came to cash-flow, but was also productive in relevant events for the company’s future. These may be summarised as follows:
There follows a more detailed break-down of the company’s performance by activities. 2.- ANALYSIS OF RESULTS BY ACTIVITIES 2.1. Exploration and production E&P operating income for the first quarter of 1997 was 12,130 million pesetas, in comparison to the previous quarter’s 10,657 million pesetas, and 4,338 million pesetas a year earlier. Operating cash-flow rose by 102.4% over 1996 figures for the period, to 22,002 million pesetas. Several factors have contributed to this improvement over last year. Oil prices were higher and the dollar rose against the peseta; Astra activities were included under this activity, boosting income by 3,290 million pesetas; exploitation margins rose with the start up of production from higher added-value fields, and divestment of our stake in the Magnus field raised an operating income of 1,589 million pesetas. Repsol’s overall production of hydrocarbons was 33.3% up on the previous year, at 3.28 million tonnes of oil equivalent. A drop in Spanish production was more than compensated for by the consolidation of Astra production and new output from the Harding field, Egypt and Lybia. Not only did the company approve a project to develop gas reserves, as previously mentioned. A new discovery of gas and condensate was made on the Khalda concession, in Egypt, and production during the test period reached 20,000 barrels of oil equivalent per day. 65,413 million pesetas were invested in this area over the first quarter, in contrast to 8,565 million pesetas a year earlier. 43,202 million pesetas of this was spent on gas reserves acquired through a share package in Pluspetrol energy; 17,971 million pesetas in development of fields; 1,500 million pesetas on exploration and 2,740 million pesetas attributable to the higher participation in Astra related to the E & P activity. 2.2. Refining and Marketing Operating income for the first quarter of 1997 was 22,906 million pesetas, 13.1% higher than that registered in the same period of 1996. Operating cash-flow was 42,057 million pesetas, in comparison to 42,296 million pesetas in the previous quarter and 34,994 million pesetas for the same period a year earlier. This improvement in the income statement may be attributed to higher international refining margins, boosted by the strength of the dollar against the peseta; and a higher sales margin on gasoils and fuel-oils, which counteracted the negative effect of withdrawal from the Dutch and German markets of leaded gasoline, and the consequent suppression of these products from the maximum price formula. Other unfavourable aspects were an 8 day stoppage at the Petronor refinery, due to a continuation of intermittent strikes; and poor results obtained at the La Pampilla refinery, where there were problems arising from stock valuation and the effect of exchange rate parity. As a consecuence of the revaluation of assets, higher amortizations reduced operating income for this activity by 3,276 million pesetas. Repsol refineries processed 8.0 million tonnes of crude oil over the three months, which is 1.1% more than in 1996. Incorporation of the La Pampilla refinery compensated for lower production from Petronor. As for logistics, overall supply of light products was at the same level as last year, in spite of a fall in consumption of heating gasoil, caused by mild weather conditions. A sales policy involving selective price discounts, with particular emphasis on unleaded 95 octane gasoline, was introduced in September, 1996, subsequently perfected, and has produced successful results. A policy to supply other operators on the home market with product that would otherwise be exported was also maintained. Sales of light products in Spain rose by 3.1% in comparison to the first quarter of last year, however, fuel-oil sales fell by 25.5%, mainly because rainfall was relatively higher. Investment outlay was 18,477 million pesetas. In marketing, this was mainly for strengthening control over and constructing service stations, and, in refining, to reduce consumption and wastage, and to up-grade products. 2.3 Chemicals Operating income from chemicals for the first quarter of the year was 7,246 million pesetas, in comparison to 5,187 million pesetas for the previous quarter, and 5,564 million pesetas a year earlier. Cash flow from this business was 8,810 million pesetas, showing a rise of 24.3% over the same period in 1996. Better performance over this first quarter, in comparison with the last quarter of 1996 and the same period last year, is explained by a strong growth in base chemical margins (36.8% over first quarter 1996 figures), although this was partly curtailed by a certain drop in sales and by derivative petrochemical margins, where sharp rises in feedstock prices were not absorbed by the market selling prices. 443 Kt of petrochemical products were sold during the three month period, that is, 10.9% less than the equivalent period of 1996. Base chemicals registered a fall of 30 Kt, partly caused by the FCC shut-down at Petronor. Derivative petrochemical sales were 7.7% (24Kt) lower, and plastics was the area most affected. 3,737 million pesetas were invested over the quarter in chemicals, against a year earlier figure of 4,533 million pesetas. Main projects included a new polypropylene plant at Tarragona, which officially went on stream on April 15th last, and a cogeneration unit (also at Tarragona), which will go into production during the third quarter of this year. 2.4 Gas Operating income from this area was 10,937 million pesetas, in comparison to 14,982 million pesetas for the previous quarter and 23,229 million pesetas a year earlier. Operating cash-flow was 17,654 million pesetas, against 28,181 million pesetas for the first quarter of 1996. This lower income was due to warm weather over the three months, which led to a low demand for heating fuels; and a price freeze on bottled LPG. LPG quarterly operating income showed a loss of 564 million pesetas, in comparison with a profit of 10,189 million pesetas obtained for this period in 1996. The economic effect of warm temperatures may be estimated at 1,700 million pesetas, whereas losses caused by the price freeze account for 11,900 million pesetas. As a consecuence of the asset revaluation higher amortizations lowered income figures by 450 million pesetas. Total LPG sales were 2.4% below 1996 levels, at 765 thousand tonnes. This fall may be attributed to the aforementioned mild winter and a certain tendency for LPG to be displaced by a higher consumption of natural gas. A break-down by business lines indicates a fall of 7.9% in bottled LPG and 9.3% in bulk sales, and a rise of 15.5% in piped gas, which, in spite of warm weather, continues to expand. The growth of LPG activity in Peru was also outstanding. There, through Rimac and Solgas, 28,000 tonnes were sold over this quarter. Natural gas registered an operating income of 11,244 million pesetas, 13.8% lower than the first quarter of the previous year. Again, mild weather caused residential and commercial sales to drop by around 2,800 million pesetas. Higher amortizations had an effect of 850 million pesetas. To this must be added amortization expenses for the start-up of the Maghreb-Europe pipeline. All in all, higher sales to the industrial sector and power stations were unable to make up for these negative factors. The residential-commercial sector consumed 7,348 million thermies of gas, showing a 10.9% decrease in comparison with 1996. The number of residential-commercial customers rose by 50,000 over the quarter. Demand from the industrial sector was 19.3% higher than for the same period in 1996, at 20,059 million thermies. Investments in gas amounted to 17,381 million pesetas. Of this, 2,095 million pesetas went to the LPG area, to improve production methods and sales activity in Spain and Peru. The remainder was basically spent on gas natural transmission and distribution infrastructure, the Trinidad and Tobago LNG plant ,and the part of investment in a 45% stake of Pluspetrol attributable to power generation. 2.5 Corporate and others This caption shows a cost of 268 million pesetas, compared to a negative 261 million pesetas in 1996. This figure basically reflects the expenses incurred by Repsol’s corporate headquarters, and not accountable to group companies. 3.- FINANCIAL RESULTS Net financial expenses for the first quarter of the year were 3,143 million pesetas in contrast to 1,254 million pesetas over the same period a year earlier and 767 million pesetas in the fourth quarter of 1996. This figure includes an income of approximately 3 billion pesetas from the share-out of reserves by the Musini mutual insurance company. If this operation were disregarded, net financial expenses would have been 3,600 million pesetas higher than those reported a year earlier, after correcting 1,300 million pesetas of capital gains from the long-term investment portfolio registered for that period. This increase in net financial expenses is basically the result of Repsol’s higher financial debt level, resulting from it large investment outlay in international development. Net financial debt at the end of this quarter reached 450,860 million pesetas, compared to 209,299 million pesetas a year earlier and 381,545 million at the close of 1996. 4.- EQUITY ON EARNINGS OF UNCONSOLIDATED AFFILIATES This figure entered under this caption for the first quarter of 1997 was 69 million pesetas, in comparison to 99 million pesetas for the same period last year, and a loss of 97 million pesetas in the last quarter of 1996. 5.- GOODWILL AMORTIZATION Goodwill amortization for the first quarter of 1997 was 452 million pesetas, in contrast to 125 million pesetas in the previous year. During this quarter, the allotment to fixed assets of certain goodwill amortization was re-assessed. As a result, goodwill amortization arising from investment by Repsol, S.A. in the La Pampilla refinery in Peru (originally entered as fixed assets in 1996) has now been classified as goodwill amortization. This has led to a fall of 9,847 million pesetas in the fixed assets caption, and a rise of this same amount in Goodwill Amortization. As amortization periods coincide for both items, this reorganization will not affect Repsol’s financial statements in any way. 6.- EXTRAORDINARY ITEMS The first quarter reported an extraordinary loss of 1,615 million pesetas, in comparison with a negative amount of 2,602 million pesetas for the fourth quarter of 1996, and an income of 1,023 million pesetas for the first quarter of that year. The most important items under this caption refer to entry on accounts of 619 million pesetas of income resulting from provisions and capital subsidies received in previous years; 333 million pesetas from divestment of corporate assets; 1,102 million pesetas of costs incurred over the period by manpower reduction programmes and 1,147 million pesetas set aside as an extraordinary provision to cover future risks and losses. 7.- TAXES The effective tax rate for the first quarter of 1997 was set at 29.5%, and is slightly higher than that for 1996. This rate is the result of two opposite effects: the non-existence of deduction for investments is expected to raise the tax rate by 1%; and revenue from the share-out of reserves by the mutual insurance company (see paragraph 3. above) is not subject to tax. According to information currently available to us, the tax rate at the end of 1997 will probably be around 30 or 31%. 8.- MINORITY INTERESTS This caption refers to the part of income attributable to minority shareholders, basically CLH, Astra, Petronor and Refipesa. The balance under this caption is 2,654 million pesetas, as against 1,814 million pesetas registered for the same period of 1996. REPSOL SUMMARISED INCOME STATEMENT (Million pesetas) (Non-audited figures)
____________________________ BREAK-DOWN OF REPSOL OPERATING INCOME BY ACTIVITY (Million pesetas) (Non-audited figures)
BREAK-DOWN OF REPSOL OPERATING CASH-FLOW BY ACTIVITY (Million pesetas) (Non-audited figures)
________________________________________________ BREAK-DOWN OF REPSOL OPERATING REVENUES BY ACTIVITY (Million pesetas) (Non-audited figures)
BREAK-DOWN OF INVESTMENTS BY ACTIVITY (Million pesetas) (Non-audited figures)
_______________________________________ REPSOL COMPARATIVE BALANCE SHEET (Million pesetas) (Non-audited figures)
REPSOL CONSOLIDATED STATEMENTS OF CASH-FLOWS JANUARY-MARCH - 1996 AND 1997 (Million pesetas) (Non-audited figures)
OPERATING HIGHLIGHTS
_____________________________________________ Madrid, May 13th, 1997 |
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