| Preview of Income Statement, 3rd quarter of 1996 |
| 1. INTRODUCTION
1.1.- Results Repsol's net income for the third quarter of 1996 was 25,522 million pesetas, 14.9% lower than that for the same period in 1995. Net income for the first nine months of 1996 was 86,976 million pesetas, in comparison with 92,149 million pesetas obtained last year. There are three main factors behind these lower third-quarter figures: a fall in international chemical margins, unfavourable marketing conditions in Europe, and some high investments made by the company, considered of great importance for its future, but on which returns will not be visible for several years. Indeed, operating income on chemicals for the period from January to September fell by 39 billion pesetas, and by 11 billion pesetas in the third quarter alone. The drop here is greater than that registered in overall operating income, which fell from 57,109 million pesetas in 1995 to 46,990 million pesetas, and for the first nine months of the year, from 168,489 million pesetas to 143,036 million. This means that other Group operating income improved by 1 billion pesetas over the third quarter and 14 billion pesetas from January to September, in spite of narrow sales margins on gasolines and gasoils, which will be explained in the relevant section herein. High investments have affected quarterly net financial results, which entered financial expenses of 4,845 million pesetas for the third quarter of 1996 in contrast to 2,295 million pesetas for the same period last year. This rise is a result of an investment outlay 72% higher than last year, at 222,423 million pesetas for the first nine months. Certain investments applied in this period will only produce a negative effect on financial expenses, for they will not go into service for some time yet. Such is the case of the recently acquired company owning the Maghreb-Europe pipeline, development of the Tin Fouy� field in Algeria, and the first stages of the Trinidad-Tobago LNG plant. Other great investment projects made over the period - the acquisition of a controlling package in Astra and a stake in the La Pampilla refinery - have already begun to generate profit, and will have a positive impact on Repsol’s income statement for the 1996 financial year. The assumption of this strategic effort in a year when conditions are unfavourable has marked Repsol’s evolution in 1996. In fact, income is being sustained under adverse circumstances, whilst a thorough preparation for future growth has been undertaken. All other economic highlights follow the trend detailed above. Accumulated operating income in LIFO terms was 137,774 million pesetas in comparison to 170,398 million pesetas in 1995. Here, it should be noted that higher crude oil prices over 1996 have positively affected stocks, whilst reducing operating income in refining and marketing to a similar degree, because the maximum price-setting formula means products must be sold at the price they had 11 days previously, thus reducing margins when international prices are rising sharply. Net cash-flow for the third quarter fell by 3.9% against last year to 61,628 million pesetas, whilst cash-flow for the first nine months of 1996 was 2.7% lower, at 183,928 million pesetas. Repsol’s high capital expenditure is responsible for a net debt at the end of September 1996 of 374,645 million pesetas. This should fall progressively from now onwards, for payments to cover extraordinary projects have already been entered on accounts. 1.2.- Business Environment The following circumstances affected our activities over the third quarter:
1.3.- Other relevant events Certain other relevant events have taken place during the period:
There follows a more detailed break-down of the company’s performance by activities. 2. ANALYSIS OF RESULTS BY ACTIVITIES2.1. Exploration and productionOperating income for this activity rose during the third quarter of 1996 by 58.6% over the same period last year, to reach 10,435 million pesetas, and was 69.7% higher than the second quarter of 1996. Cumulative operating income for the first nine months of this year amounted to 20,922 million pesetas, in comparison to 16,436 million pesetas a year earlier. Operating cash-flow for the quarter was 19,669 million pesetas against the 1995 figure of 13,129 million pesetas. This caption for the first three quarters amounted to 43,637 million pesetas, showing a rise of 25.2% over 1995. Several factors have contributed to a higher income for this quarter. The aforementioned rise in crude oil prices and the appreciation of the dollar against the peseta for one part. For another, the start-up of production from the Harding field, where production has plateaued at a higher level and more quickly than was originally foreseen, reaching an average production for September of 67,000 barrels of oil per day (bpd). The East Delta gas and condensate field in Egypt also went into production before expected. Lastly, since July, operating income has included Astra E & P operating income. These new production start-ups are behind the recent change in trend for this activity. Quarterly production, at 3.10 million tonnes of oil equivalent (Mtoe) was 30.8% up on the third quarter of last year, and production over the first nine months of 1996 was 6% higher than a year earlier, at 7.95 million tonnes. In Spain, quarterly production of crude oil and gas rose by 7.6% to 0.14 Mtoe because of higher gas production from the Albatros field. Outside Spain, production increased by 32.1% over the same period of 1995, mainly the consequence of entering Astra production on accounts. New production from Harding and the East Delta was also noticeable. 42,695 million pesetas were invested over the third quarter of 1996, in comparison to 10,110 million pesetas in 1995. Accumulated investments over the first nine months of this year amounted to 62,238 million pesetas: 27,745 million pesetas of this was spent on purchasing Astra (attributable to E&P), 6,271 million pesetas were invested in exploration and 28,222 million pesetas in the development of fields. 2.2. Refining and Marketing Quarterly operating income was 19,288 million pesetas, 21.7% down on the same period last year, but 15.3% higher than the second quarter of 1996. Accumulated income for the first three quarters was 3.7% up on last year, at 56,272 million pesetas. Refining margins were 38 cents per barrel higher during this quarter than in the same period last year, and 40 cents per barrel lower than in the second quarter of 1996. These quarterly figures were affected by other factors apart from refining margins and stock gains.
The above policy has begun to show positive results. Some 7.6 million tonnes of oil products were sold during the third quarter, showing a rise of 12.6% over the same period in 1995. Part of this increase is the result of including Astra and La Pampilla sales this quarter. Yet it is also true that sales in Spain, both to our own network and to other operators, were 4.1% up on last year, at 5.8 million tonnes. Gasoline sales were more or less stable (at a time when consumption in Spain fell by 1%, according to the Asociaci�n de Operadores, AOP), and 10.6% more medium distillates were sold (whilst home demand grew by 4%). Investment outlay during the first nine months of 1996 was 35.7% up on last year, at 84,090 million pesetas. 23,324 million pestas went to the acquisition of Astra (refining and marketing) and the La Pampilla refinery. A large portion of the remainder was, once again, applied to linking up service stations. During this quarter, a desulphurization unit went on-stream at the Puertollano refinery, and hydrogenation plants started up at La Coru�a and Puertollano. These facilities form part of a programme for adjustment to new sulphur specifications for gasoils (which came into effect on October 1st), and involved an investment of 12,600 million pesetas. 2.3 Chemicals Operating income from chemicals for the third quarter of the year was 5,755 million pesetas, showing a drop of 23.9% over the second quarter of 1996 and 65.3% against the same period last year. Accumulated income for the first three quarters of 1996 was 18,882 million pesetas in contrast to 57,942 million pesetas registered in 1995. Margins on both base and derivative petrochemicals fell drastically in comparison to last year. As far as the second quarter of this year is concerned, there are two reasons for the difference. All things being equal, the third quarter is usually, for seasonal reasons, the weakest of the year. Apart from this, the sharp increase over recent months in international prices for naphtha petrochemicals has not yet been entirely passed on to ethylene and propylene prices, giving rise to a significant cut-back in margins on base petrochemicals. Margins on intermediate products have also continued their downward trend, as noted in previous reports, particularly in the case of styrene, whilst margins on main plastics were equal to or slightly higher than those registered in the second quarter of this year. Preliminary forecasts indicate that margins on base and derivative petrochemicals will be a little better over the last quarter of 1996. Petrochemical sales over the three month period were 7.9% higher than a year earlier, reaching 466 Kt, and similar to those for the second quarter of this year. 17,064 million pesetas were invested in this activity over the first nine months of 1996, in comparison to 5,217 million pesetas last year. Current projects have already been described in previous reports, and include a new polypropylene plant, a cogeneration unit and re-vamping of the low density polyethylene plant at Tarragona. New capacity increases went on stream this quarter in the polypropylene unit and in that for the conversion of low-density polyethylenes to EVA copolymers, at Puertollano. 2.4 Gas Third quarter operating income for the gas activity was 24.4% up on last year, at 11,666 million pesetas. Accumulated three-quarterly income reached 47,647 million pesetas in comparison to 42,204 million pesetas in 1995. Both LPG and natural gas activities contributed to this good performance. LPG operating income was 17.7% up on the same period of 1995, at 4,643 million pesetas, thanks to higher sales and lower operating costs. Indeed, Repsol’s continuous cost-cutting measures have compensated for lower unitary margins caused by not up-dating distribution costs in the current maximum price formula. LPG sales for the three month period rose by 6.4%, mainly as a result of favourable weather conditions last September. Quarterly sales of bottled LPG were 4.4% higher, while the market for piped gas and the "Tailor-made Plan" continued its expansion trend. In the natural gas area, operating income improved by 29.3% over the third quarter of 1995, reaching 7,023 million pesetas. Here, sales were higher, there was a reversion of provisions made in the previous quarter to compensate the time lag in applying differences in feedstock prices to selling prices, and a rise in residential/commercial tariffs was approved in September. 12,009 million thermies of natural gas were sold in this quarter, showing an 11% growth over 1995. Sales in Spain rose by 12.2% and in Argentina by 8.5%, although, in the latter, unitary margins have been weaker this year than last. By sectors: 2,891 million thermies were sold to the residential-commercial sector (10.3% up) and 7,585 million thermies to the industrial market (12.3% up). 7,116 million pesetas were invested in the LPG area over the first nine months of 1996, in comparison to 5,786 million pesetas last year. Capital expenditure on the natural gas area was 75.9% higher than in 1995, at 50,712 million pesetas. Of this, 33,417 million pesetas were spent on transport infrastructure, and the remainder was dedicated to distribution networks. In October last, Astra announced its participation in the building of a new combined-cycle power station fed by natural gas, with a power of 660 MW (Dock Sud). This decision forms part of that company’s strategy to give added value to natural gas reserves and increase its interests in electricity generation in Argentina. Total investment for this project is estimated at $250 million. Astra holds a 36% stake in this project and the facility is due to go on stream in 1999. Net financial expenses for the third quarter of 1996 were 4,845 million pesetas, in contrast to the 2,295 million pesetas registered a year earlier. The main causes of this higher figure were:
These two aspects were partially counterbalanced by interest capitalization on financing of the Maghreb pipeline, involving approximately 1 billion pesetas. The third quarter of 1996 reported an extraordinary income of 263 million pesetas. This figure may be broken down into revenues from asset divestment (611 million pesetas), the reversion of provisions and subsidies received in previous years (1,189 million pesetas), and 1,537 million pesetas of expenses incurred over the period for manpower adjustment programmes at CLH, Repsol Butano and Repsol Qu�mica. Goodwill amortization for the third quarter was 200 million pesetas, in comparison to 2,598 million pesetas in the same period of last year. Investment in Astra and La Pampilla hardly generated goodwill amortization, for amounts invested over and above the book value of assets acquired were identified and entered as fixed assets pertaining to those companies. Income tax at September 30th, 1996 was calculated at 40,747 million pesetas, and represented an effective rate of approximately 30%. REPSOL SUMMARISED INCOME STATEMENT(Million pesetas)- NON -AUDITED FIGURES-
_________________________________________ ANALYSIS OF REPSOL OPERATING INCOME BY ACTIVITY(Million pesetas)- NON -AUDITED FIGURES-
_____________________________________ ANALYSIS OF REPSOL OPERATING REVENUES BY ACTIVITY(Million pesetas)- NON -AUDITED FIGURES-
_____________________________________ ANALYSIS OF REPSOL INVESTMENTS BY ACTIVITY(Million pesetas) - NON -AUDITED FIGURES-
_____________________________________ REPSOL COMPARATIVE BALANCE SHEET(Million pesetas)- NON -AUDITED FIGURES-
REPSOL CONSOLIDATED STATEMENTS OF CASH FLOWS JANUARY-SEPTEMBER - 1995 AND 1996(Million Pesetas) - NON -AUDITED FIGURES-
OPERATING HIGHLIGHTS- NON -AUDITED FIGURES-
_____________________________________________ Madrid, August 29, 1996 |
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