| Preview of Income Statement, 4th quarter of 1996 |
| 1.- INTRODUCTION Repsol’s net income for the last quarter of 1996 was 32,246 million pesetas, 26.1% and 26.4% higher than the results obtained for the same period in 1995 and the third quarter of 1996 respectively. Net income for 1996 reached 119,222 million pesetas, showing a rise of 1.3% over that of last year. Net cash flow for the fourth quarter of 1996 was 75,333 million pesetas as opposed to the 56,203 million pesetas for the same period in the previous year. In accumulated values for the year, the net cash flow was 259,261 million pesetas, 5.9% higher than that of 1995. Operating income for the fourth quarter was 55,574 million pesetas, 26.3% higher than that for the fourth quarter in 1995, and 18.3% greater than that for the third quarter of 1996, even though Repsol Butanos’s contribution has been 3,000 million pesetas lower, as a consequence of the Government’s decision to freeze LPG prices. The turn in the chemical cycle, the implementation of the selective discounts marketing policy and LPG maximum price freezing had a global impact of more than 50,000 million pesetas in 1996 operating income. The remaining activities have improved by more than 35,000 million pesetas, resulting in an operating income of 198,610 million pesetas for 1996, as opposed to the year earlier 212,504 million pesetas. In LIFO terms, operating income for 1996 was 190,758 million pesetas as compared to 213,711 million pesetas in 1995. Stock gains have contributed with more than 7,000 million pesetas to the year’s figure, but there is also a negative impact of some 4,000 million pesetas, arising from the maximum price system when international prices rise sharply, as has been explained in previous reports. One of the main features of 1996 has been the high capital expenditure, particularly in Latin America. In the last quarter of 1996, Repsol’s investment outlay added up to 94,127 million pesetas as compared to 73,725 million pesetas for the same period in the previous year. The total accumulated investment was 316,500 million pesetas, up 55.8% over the investments made during all of 1995. As a consequence of this evolution and the consolidation of the companies recently acquired, net debt at the end of the year amounted to 381,545 million pesetas, showing an increase of 206,170 million pesetas over 1995. 1.2.- Business Environment The most relevant circumstances of the fourth quarter have been the following: Crude oil prices continued to rise. The average price for Brent was $23.58 per barrel as opposed to $20.94 per barrel in the third quarter of this year and $16.97 per barrel in the fourth quarter of 1995. International refining margins improved, particularly during November. The average for the quarter was 2.3 $/barrel, $0.60 per barrel higher than those for the third quarter of this year and those of the fourth quarter a year earlier. Fuel margins in Spain continued to be affected by various factors. In addition to the effects caused by the price war at service stations in the United Kingdom and the disappearance from the Spanish maximum price formula of the reference prices for leaded gasoline in Holland (since September) and Germany (since October), there should be added the effects derived from the new commercial policy, which aims to promote consumption of unleaded 95 RON gasoline and to increase market share by applying greater discounts in its prices than in the remainder of gasolines. The peseta continued to behave differently against the dollar and the deutschmark. It has depreciated by 5.4% against the dollar with respect to the fourth quarter of 1995 and 4.3% in relation to the third quarter of 1996, reaching an exchange rate of 129.89 pesetas per dollar. In contrast, the peseta rose aginst the deutschmark by 1.9% with respect to the fourth quarter of 1995 and by 0.3% with respect to this year’s third quarter, registering an year end exchange rate of 84.26 pesetas per DM. Chemical margins for the last quarter of 1996 were about 10% lower than the previous quarter. Their effect on results has been partially mitigated by a 5.3% increase in sales. The average temperature for the fourth quarter was almost lower than that of the last quarter of 1995, which was an unusally warm period. This has determined greater heating necessities, which have affected the demand for LPG, natural gas and heating fuel. 1.3.- Other relevant events Certain other relevant events have taken place during the quarter: In December, production started in the NC-115 (Murzuq) fields in Lybia.This will add a significant contribution to the company’s forthcoming results, both in volume and economic terms (profit ad cash flow). On November 1st, the first phase of the Maghreb-Europe pipeline (Hassi R’Mel-Cordova) was inaugurated. This pipeline constitutes a decisive element in the natural gas supply policy, since it will permit the reinforcement of supply security, reducing at the same time transportation costs. On a European level, the pipeline will represent an element of strategic interest, since it will help to strengthen the diversification of energy supplies for the entire continent. Repsol and Gas Natural founded the company Gas Natural Latinoamerica, with a participation of 50% by both companies, whose object is to develop jointly gas projects. Since the strategy is to expand towards other Latin American countries, both companies are studying, at this time, plans for projects in Mexico, Puerto Rico, Colombia, Argentina, Uruguay and Brazil. In October Enagas signed contracts for the supply of natural gas, to be used in the generation of electricity, with various electric companies. The total volume of gas contemplated in the contracts adds up to more than 21,000 million thermies for the period between the last quarter of 1996 and December, 1997. Once the contracts have become effective, the percentage of electricity generated from natural gas will rise up to 5%, contributing favourably to environment preservation. During the month of November, Repsol’s Board of Directors agreed on the payment of a gross interim dividend for the year 1996 of 79 pesetas per share, this being an increase of 8% with respect to last year’s dividend of 73 pesetas per share. In accordance with Royal Decree-Law 7/1996 of June 7th, Repsol proceeded to revalue its assets. This has resulted in an increase in shareholder funds of 120,000 million pesetas. 1.4.- Recent developments At the beginning of January, Repsol, through its affiliate, Astra, acquired a 45% stake in the Argentine company Pluspetrol Energy S.A. for the amount of 340 million dollars. Pluspetrol Energy is a company dedicated to exploration and production of hydrocarbons and generation of electricity. Among its assets figure the giant Ramos gas field, located in the northwest of Argentina, of which it is the operator and the owner of a 60% stake. It also possesses 100% of a combined cycle power plant, fed with gas from the mentioned field. The participation in this company consolidates the position of Repsol in an integrated gas project, going from extraction to marketing, in addition to generation of electric energy, in a region considered preferential from a strategic point of view for the future expansion of Repsol in Latin America. At the end of January, the companies Repsol, Gas Natural and Iberdrola signed an Industrial Agreement that lays the foundation for an extensive cooperation between both companies. The areas of collaboration included in the agreement are: (1) A stake of up to 50% in all the new projects of electricity production in the field of cogeneration, generation with gas or with refinery residues, as well as in existing plants, susceptible to consumption of gas. (2) Energy projects abroad, principally in Latin America. (3) To ensure, through stakes in gas fields, supply for the new capacity of electricity generation. The development of this Agreement will provide greater stability for the income of both companies, due to the complementary nature of the different business cycles of natural gas production with that of generation of electricity with this fuel. Furthermore, the greater availability of locations for new projects will permit the optimization of the selection of the same, thus improving the efficiency of electricity generation and contributing to the reduction in the cost of the energy produced. 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 Operating income for this activity in the fourth quarter of 1996 was 10,657 million pesetas, in comparison to 2,563 million pesetas a year earlier. Several factors have contributed to this higher income. They include the favourable evolution of crude oil prices, the appreciation of the dollar against the peseta, greater production from the Harding field. Also contributing positively were the new production start-ups of the East Delta field in Egypt and the company Astra. These positive factors were reduced by the exceptional depreciations that had to be applied due to the closing of the Albatros field as a consequence of the entrance of water into the same, as well as the greater depreciations of exploration carried out in the United Kingdom and in Egypt, and by the coverage of existing future contracts for the production of Astra, which have diminished slightly the positive effect of the higher crude oil prices. Operating income for 1996 amounted to 31,579 million pesetas, showing a rise of 66.2% over 1995. Operating cash-flow reached 67.525 million pesetas, against the 1996 figure of 44,033 million pesetas. The reasons given for the quarterly results are, basically, the same that justify the positive evolution of the annual results. The average price for Brent crude oil during 1996 was $20.46 per barrel as opposed to $17.05 per barrel in 1995. The exchange rate for the dollar during the business year was 126.65 pesetas per dollar, 1.6% higher than the average of the previous year. The Harding Field started production during the month of April and reached stable production levels higher than those initially foreseen, registering flow volumes of 70,000 barrels per day at the end of the year. The total production obtained from this field was 3.24 million barrels of crude oil (Mbbl). Furthermore, Astra, with a production, recorded since July 1st, of 8.66 Mbbl, has made a contribution of 5.523 milllion pesetas to Repsol’s operating income. In 1996 overall production was 11.28 million tonnes of oil equivalent (Mtoe)- 81.37 million barrels of oil equivalent (Mbep) - a figure similar to that of last year. The start-up in production of the crude oil fields of Harding in the British North Sea and Rodaballo in Spain, of the East Delta gas and condensate field in Egypt, as well as the recording of Astra’s production (1.27 million Toe), have compensated for the fall in production in the Casablanca, Dubai and Gab�n fields. Among the discoveries made in the year, the most outstanding are those of gas and condensate carried out in the Khalda concession, in the Egyptian Western Desert. Due to these new discoveries and the delineation drilling in this concession, during 1996 gas reserves have increased, permitting us to commence project development during the next few months, having signed a purchase contract with the Egyptian national company. Investments made during the fourth quarter add up to 25,301 million pesetas, in comparison to 9,400 million pesetas in 1996. Accumulated investments over the year amounted to 87,539 million pesetas, as opposed to 35,333 million pesetas in 1995. Of the total, 30,829 million pesetas correspond to the investment made in Astra, attributable to E&P. Investments made in the development reached 41,791 million with respect to 26,701 million pesetas invested in these activities in 1995. Worthy of note are the projects underway in North Africa. In Algeria there has been an important volume of activity in surface installations and work has begun in the subsoil of the Tin Fouy� Tabankort field. In Libya the construction of a pipeline to Hammada, 345 kilometers long, included in the project NC-115, has been completed, having initiated the early phase of crude production by means of a temporary installation. 2.2. Refining and Marketing Operating income for the fourth quarter was 25,047 million pesetas, 15.3% higher than that registered in 1996 and 29.9% above that of the third quarter. Cumulative operating income added up to 81,319 million pesetas, up 7.0% over last year. The quarterly results were affected by 21 days of labour disputes at the Petronor refinery, with a negative impact of 3,500 million pesetas. During the fourth quarter of 1996, Repsol refineries have processed 8.75 million tonnes, a figure which is 5% higher than last year’s figure and 6% more than the distillation of the third quarter of 1996, although this increase is due exclusively to the inclusion of La Pampilla, which distilled the amount of 0.8 million tonnes. The contribution of the La Pampilla refinery to the operating income has increased with respect to that of the third quarter of the year, as a consequence of the improvements introduced by Repsol in the systems of crude oil purchasing and the progressive adjustment of sales prices in the Peruvian domestic market to import parities.The cumulative contribution of the activities carried out in Latin American included in this section amounts to almost 2,200 million pesetas. As far as the logistics are concerned, supplies of clear products carried out by CLH during the fourth quarter were 4.1% higher than those of the same period last year. As compared to the previous year, the contribution to the accumulated operating income of the logistic activities has been very similar. The activity of strategical storage and the growth in the activity - by 2.6% for all the products and markets, reaching 30.6 million tonnes - has been partially compensated by the decrease in logistical tarriffs (8% for gasolines and gasoils). The continuation of the price war in the United Kingdom, in spite of a slight improvement in the situation, together with the end of the publication of leaded gasoline prices in Holland and Germany, and the appreciation of the peseta against the deutschemark, have continued to depress the gross margin of gasolines in Spain. The sum of these factors has affected the annual operating income of this activity as a whole by an estimated amount of almost 10,000 million pesetas. As already commented, since September 1996, Repsol has initiated a new marketing policy with selective price discounts, especially in unleaded 95 RON gasoline, and the use of new marketing tools, such as promotions and customer loyalty programs. This policy has already produced measurable results in 1996, having registered an increase in the market share for gasolines of around two percentage points, according to the Asociaci�n de Operadores de Productos Petrol�feros (AOP). Throughout the financial year, the sales of oil products continued to reflect the positive evolution of the demand for various products and the policy developed by the company of supplying oil products, not only through its own sales network, but also to other operators, thus substituting for exports, which have lower unitary margins. So, the sales for middle destillates experienced a growth of 7.5% compared to last year if we deduct the effect of the constitution of strategic stocks carried out over the last quarter of 1995. Investment outlay for 1996 was 110,192 million pesetas as compared to 98,125 million pesetas invested in 1995. Of the total, 28,102 million pesetas went to the acquisition of Astra (attributable to refining and marketing) and the La Pampilla refinery. The linking up of service stations has continued its consolidation process, absorbing a very important part of the investments and, at the end of the year, 74% of the Repsol service station network was owned by the company. Other projects carried out by the refining area were the plan of adaptation to new specifications for sulphur in gasoils that came into effect on October 1st, and the start-up during 1996 of one desulphurization unit for gasoils in Puertollano and two hydrogenation plants in La Coru�a and Puertollano. 2.3 Chemicals Operating income from chemicals for the fourth quarter of the year was 5,187 milion pesetas, showing a rise of 5.5% over that of the same period in the previous year and a drop of 9.9% over the third quarter of 1996. This improvement in the last quarter’s income with respect to that obtained in the same period in 1995 is due to the sharp fall in margins that occured during the fourth quarter of that year, and in the case of some products, which even fell below those of 1992. Nevertheless, the comparison with the income of the third quarter of 1996, which traditionally is the weakest of all the quarters, is due to other factors commented below. Chemical margins fell due to the continual rise in the prices of naphthas and the impossibility of transferring this increase to ethylene and propylene prices. Additionally, derivative petrochemicals registered an 11% decrease in their margins. The rubber and intermediate product lines were those most affected, with special relevance in the acrylonitrile and styrene products. Higher sales, by 5.3%, were nor nough to compensate diminishing margins. Accumulated income added up to 24,069 million pesetas as opposed to 62,589 million pesetas obtained last year. The comparison between years, with a 61.7% reduction in income, should be analyzed in the context of the exceptional nature of the 1995 financial year. Although, generally, margins of main plastics have been lower than those of 1995, during the second half of the year they were higher than those of the first half of 1996. Sales of petrochemical products in 1996 were 1,916 Kt, showing a rise of 3.95% over last year. Basic products grew by 3.3% while sales of derivative petrochemicals increased by 4.4%. Investments in this area during 1996 amounted to 27,099 million pesetas, as against 9,152 million pesetas in 1995. The main projects under way are a new polypropylene plant in Tarragona, with a capacity of 190,000 tonnes per year, which is expected to come on stream during the second quarter of 1997 and a cogeneration unit, also in Tarragona, which will begin operation during the third quarter of this year. Other projects which have come on stream during 1996 are the re-vamping of the polypropylene units and the conversion of low density polyethylenes to EVA copolymers at Puertollano and the re-vamping of the ethylene capacity in Tarragona to 550 Kt which will finalize this year, as well as the third line of thermoplastic rubber in Santander. 2.4 Gas Operating income for the fourth quarter of 1996 was 14,982 million pesetas, 2.2% below the previous year. The accumulated income added up to 62,629 million pesetas as against 57,526 million pesetas for the previous year. The LPG and natural gas activities have contributed in an unequal manner to quarterly results. LPG operating income was 4,318 million pesetas, 37.1% lower than the same period last year, in spite of a sales increase of 9%. The reason has been the impossibility of passing on to selling prices sharply higher raw material prices. In the natural gas area, quarterly operating income was 10,664 million pesetas, 26,0% higher than last year, as a consequence of greater sales in Spain, which have more than compensated for the fall in sales registered in Argentina. The accumulated income for LPG was 24,804 million pesetas, a figure which is 6.5% lower than last year. Total LPG sales, 2.47 million tonnes, were 4.4% up on 1995. A sales break-down shows a 21% rise in piped gas and a 8% rise in bulk gas. Natural gas registered an accumulated operating income of 37,825 million pesetas, 22.1% higher than the previous financial year. Demand for gas from the residential-commercial sector reached 27,882 million thermies, showing an 11% increase over 1995. The number of residential-commercial customers rose by nearly 200,000 last year, to the figure of 3,600,000. In 1996, demand from the industrial sector rose by 11% over the previous year to 70,455 million thermies. Investments in LPG amounted to 17,141 million pesetas, including the acquisition of Solgas in Peru (6,573 million pesetas), as compared to 9,745 million pesetas in 1995. In the case of natural gas, investments totalled 73,148 million pesetas, as against 48,218 million pesetas in 1995. 15% of natural gas investment was spent in Latin America. 2.5 Corporate and others This caption shows for the full year a negative figure of 986 million pesetas, compared to a negative 2,873 million pesetas in 1995, the improvement being a consequence of the accounting of Astra’s "director’s fee". 3.- FINANCIAL RESULTS Net financial expenses for the last quarter of the year were 767 million pesetas in contrast to 1,782 million pesetas over the same period a year earlier and to 4,845 million pesetas in the third quarter of 1996. Accumulated net financial expenses added up to 8,141 million pesetas, figure which, in comparison to the 10,675 million pesetas recorded in 1995, represents a decrease of 23.7%. During the last quarter of 1996 the decision was taken to capitalize financial expenses generated by those investment projects (fundamentally in the areas of exploration and production) which have construction periods of more than one year, adapting our accounting criteria to American accounting principles (US GAAP) and to customary practice in other oil companies. The effect of this measure in the figures of the last quarter has been 3,787 million pesetas which, added to the interests capitalized in the financial year pertaining to the investment in the Magreb pipeline, amounts to 7,019 million pesetas. Net financial debt at the end of the year reached 381,545 million pesetas, compared to 175,375 million peseta at the end of 1995, a rise which is reflected in the average figures for annual debt, which rose from 164,985 million pesetas during 1995 to 234,640 million pesetas, in 1996, that is to say, it has registered an increase of 42%. This sharp increase in the debt has become more apparent during the last quarter of 1996, making evident the intense investment effort carried out during this past financial year, and, more specifically, during the last months, a circumstance which has already been commented in previous points relative to the different business areas. 4.- EQUITY ON EARNINGS OF UNCONSOLIDATED AFFILIATES This caption, in addition to the earnings of the companies in which Repsol has a minority stake, includes, since the third quarter of 1996, earnings corresponding to Astra’s activities of refining, marketing, gas and electricity, in which this company owns a minority stake. The fourth quarter of 1996 has been negative in the amount of 97 million pesetas, compared to a positive 438 million pesetas in the same period last year. This negative result was originated basically in some subsidiaries owners of service stations. The total figure for 1996 adds up to 358 million pesetas, 56.2% lower than 1995. 5.- GOODWILL AMORTIZATION During the fourth quarter an amortization of 154 million pesetas was made, as opposed to 128 million pesetas in 1995. The accumulated total amounts to 877 million pesetas, which is significantly lower than the 6,708 million pesetas of 1995, when extraordinary write-offs in goodwill amortization were made for various companies. 6.- EXTRAORDINARY ITEMS The fourth quarter reported an extraordinary loss of 2,602 million pesetas. The concepts included are those referring to profits generated by the sale of company assets (1,206 million pesetas), the application to the results of provisions and subsidies of capital received during previous years (3,281 million pesetas), costs incurred during the period for manpower restructuring programs for the amount of 3,019 million pesetas, and extraordinary provisions to cover risks or future losses that amount to 4,707 million pesetas. 7.- TAXES Repsol closed the 1996 financial year with an effective rate of 29.3%, a rate that is slightly lower than the one considered during the previous quarters of the year. In 1995 the effective tax rate reached 32.1%. The drop in the tax rate in 1996 is basically due to the lack of write-offs, which are not deductible for tax purposes, as happened in 1995 (goodwill amortizations and other write-offs), as well as certain tax advantages that have become evident with the implementation of the new Corporate Tax Law. 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 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-DECEMBER - 1995 AND 1996 (Million Pesetas) - NON -AUDITED FIGURES-
OPERATING HIGHLIGHTS- NON -AUDITED FIGURES-
_____________________________________ Madrid, March 1997 |
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