| Preview of Income Statement, 4th quarter of 1998 |
| 1.- INTRODUCTION FINANCIAL HIGHLIGHTS 1998
1.1.- Income Statement Repsol’s net income for the last quarter of 1997 was 40,244 million pesetas (283.11 million dollars), 9% higher than the results obtained for the fourth quarter of 1997. Quarterly operating income, at 74,593 million pesetas (524.75 million dollars), and cash-flow, at 103,447 million pesetas (727.73 million dollars), rose by 6.1% and 7.9% respectively, in comparison to the same period a year earlier. The 1998 financial year closed with a net profit of 145,515 million pesetas (1,023.7 million dollars), which was 15.4% higher than that for 1997. Operating income showed a substantial rise of 18% on the previous year’s performance, and cash-flow was 9.1% up on 1997. In the fourth quarter of 1998, Repsol made investments amounting to 115,483 million pesetas (812.4 million dollars). Capital expenditure for the whole financial year was 368,939 million pesetas (2,595.4 million dollars), 27.3% less than in 1997. At December 31st, net financial debt was 587,939 million pesetas (4,136.0 million dollars), giving Repsol a net debt to capitalisation ratio of 30.7%. This is practically the same as the level registered at the end of 1997. Last year’s final quarter was still marked by a low oil price scenario, the economic crisis in Asia again affected chemicals, and international refining margins remained higher than in the previous year. Income from all areas of company activity improved, with the exception of exploration and production. Even in the chemical area, our increased production capacity compensated for recent lower margins on derivative products as a result of adverse conditions in the Far East.
1.2.- Highlights of the last quarter, 1998
1.3.- Acquisition of a 14.99% stake in YPF
2.- ANALYSIS OF RESULTS BY ACTIVITIES 2.1.- Exploration and production Quarterly results At 680 million pesetas, operating income for this activity in the fourth quarter was very much lower than the 11,610 million pesetas obtained for the same period in 1997, and the 2,697 million pesetas registered in the third quarter of 1998. Crude oil prices were at similar levels to the preceding quarter, at $11.16 per barrel, and far below the $18.7 per barrel registered in the fourth quarter of 1997. Lower income during the final quarter as opposed to the third was the result of higher amortisation for unsuccessful exploration activity. Astra’s fourth quarterly contribution to operating income was 708 million pesetas, in comparison to 2,069 million pesetas in the prior quarter. This fall from one period to the next is mainly attributable to lower operating revenues because of low oil prices, although partially offset by reduced operating costs. In this respect, long term production tests were completed in December at the Tag12 well, where the important Tacata field was discovered in the Quiamare-La Ceiba Block in Venezuela, showing a cumulative production of 52,096 barrels of oil. Preparations are currently under way for the start-up of definite production. Repsol’s production for the fourth quarter of 1998 was 3% up on third quarter levels, at 3.25 million Toe. This improvement mainly came from the start-up of the Tifernine field in Algeria and higher production in Libya, reaching nearly 150,000 barrels per day by the end of 1998.
Results for the year At 15,404 million pesetas, operating income fell by 66.1% over 1997 figures. Operating cash flow was 68,901 million pesetas as opposed to 94,005 million pesetas for 1997. Income from exploration activity was gravely affected by worsening oil prices, which dropped to the lowest levels for this decade. The average price of Brent crude in 1998 was $12.74 per barrel, in contrast to $19.09 per barrel in 1997. The effect of these low oil prices was partially counteracted by a higher dollar/peseta exchange rate, with an average rise of 2.02% from one year to the other. The adverse conditions mentioned above were also partially offset by an 8% increase in production. Thus, Repsol’s net production for the whole year was 89.88 million barrels of oil equivalent (12.52 million tonnes of oil equivalent).
Investments 30,397 million pesetas were invested during the fourth quarter of 1998. Overall investments for last year were 49.8% lower than the previous year, and amounted to 114,869 million pesetas. The greater part of this expenditure, 87,201 million pesetas, went to develop producing fields, and 11,423 million were spent on exploration. Of the 41 wells drilled and completed in 1998, 10 struck positive. Another 7,869 million pesetas were invested in reserves’ acquisitions, and 8,376 million were used to pay for the part of Repsol’s increased stake in Astra attributable to the exploration and production area.
2.2.- Refining and Marketing Quarterly results Operating income for the final quarter last year was 41,065 million pesetas. This was similar to that obtained in the third, and 41% higher than in the last quarter of 1997. Repsol’s refining margin indicator in Spain rose by 20% in comparison to the third quarter of 1998, and was 24% above that registered in the fourth quarter of 1997. Income during the period was curtailed by a scheduled shut-down at the Petronor refinery during October. Turning to the logistics activity conducted by CLH, this dealt with 10.7% more products than in the same quarter a year earlier. Over the whole year, CLH increased its activity by 7.6% in comparison to 1997, although there was a fall of 0.5% in gasoline. As for marketing, sales of gasoline, gas-oil and aviation products in Spain (excluding those to other operators) over the last three months of 1998 rose by 6.4% with respect to the same period a year earlier, and 4.6% if we compare results for the two full years. Refining margins in Peru maintained a high level, close to the $4 per barrel mark, and were much better than those for the third quarter. The distillation level was, however, lower than in previous quarters at around 84% of nominal capacity, as the result of a shut-down at the primary and vacuum distillation units in November for scheduled maintenance and the installation of several improvements. All-in-all, La Pampilla contributed 1,920 million pesetas of operating income in this fourth quarter. Eg3 obtained an operating income of 2,022 million pesetas, similar to the figure obtained in the third quarter. The Bah�a Blanca refinery maintained a slightly higher than nominal distillation level, with margins in the region of $3.2 per barrel.
Results for the year 1998 operating income from this area was 40% up over 1997, at a record 155,186 million pesetas. This improvement may basically be attributed to higher refining margins throughout the year, increased sales and good marketing margins in Spain, accompanied by a larger contribution from activities in Latin America. 35.7 million tonnes were distilled at Repsol’s refineries in Spain, and this represents 96.6% of capacity, 9.5% more than the previous year. Average margins at the Group’s Spanish refineries were 15% higher than in 1997. Consolidated distillation figures for the Group were 41.8 million tonnes, showing a rise of 12% over the preceding year.
Investments Fourth quarterly investment in refining and marketing was 32,818 million pesetas. Investments for the whole year amounted to 88,775 million pesetas, and were 24% less than in 1997. Expenditure was made to increase conversion capacity, improve product quality, construct the Cartagena-Puertollano pipeline, modernise the pipeline network and storage facilities, and to extend and improve the network of sales outlets in Spain and Latin America. Work also started on projects to increase conversion capacity at the La Pampilla refinery in Peru.
2.3.- Chemicals Quarterly results Operating income from chemicals for the fourth quarter of last year was 6,646 million pesetas, showing a 24.3% fall against that for the same period in 1997, but a 27% rise over the figure for the third quarter of 1998. The lower performance for this quarter in 1998 in comparison with the same period of 1997 was the outcome of generally lower margins caused by the crisis in south-east Asia, which particularly affected the area of base chemicals. Growth in income when compared with the previous quarter may be attributed to relatively higher margins, above all on base chemicals as a result of lower naphtha prices, in conjunction with 3% higher sales of overall chemical products.
Results for the year Accumulated income for the year was 3.7% up, at 29,440 million pesetas, against the 28,379 million pesetas obtained a year earlier. This was achieved despite difficult conditions for international markets, caused by the crisis in developing countries. Two million tonnes of petrochemical products were sold throughout 1998. This was a rise of 14% over the previous year. Both chemical product lines registered growth, with a 6.5% improvement in base chemicals, and a sharper jump of 17.1% in derivative chemicals.
Investments 14,083 million pesetas were invested in chemicals during the last quarter of 1998, in comparison with 13,519 million pesetas for the same quarter a year earlier. Accumulated investments in this area during 1998 amounted to 30,492 million pesetas, as against 28,040 million pesetas in 1997. The main project currently under development is the construction of a new propylene oxide and styrene monomer complex, which will triple production, using new technology available only to Repsol and two other companies in the world. In derivative chemicals, another important project for the hydrogenation of thermoplastic rubber (SEBS) is being developed at the Santander chemical complex. This project will position Repsol as one of the first producers in the international sector.
2.4.- Gas and electricity Quarterly results The 26,585 million pesetas in operating income obtained by Repsol from the gas activity in the fourth quarter of 1998 was 25% more than that registered in the same period of 1997. LPG operating income for the three months was 43.9% up on year earlier figures, at 11,438 million pesetas, mostly because of cold weather in Spain which boosted quarterly sales by 5.9%. 837,000 tonnes of LPG were sold in the last quarter of 1998, and this was 11.3% more than in the same period a year earlier. Here, sales outside Spain rose by 40.5% in comparison to the fourth quarter of 1997. LPG activity in Latin America was marked by an adverse situation for sales and margins in Argentina, despite which performance improved against that of 1997. In fact, LPG activity for the final quarter showed an overall improvement over the same period a year earlier, registering an income of 266 million pesetas, mostly as a result of the incorporation of Duragas in Ecuador. Income for the last quarter of 1998 from natural gas and electricity was 13.6% up, at 15,147 million pesetas thanks to better unitary margins and higher sales in all segments, with the exception of power stations. As for the sale of electricity, the acquisition through Pluspetrol Energy of the San Miguel de Tucum�n power station in Argentina increased sales with respect to the previous year. Fourth quarterly sales by the Gas Natural Group to the residential and commercial sector rose by 24.8% over 1997, to 10,093 million thermies. Here, the list of customers has grown through expansion in the areas already covered by the company, new acquisitions made throughout the year, and cold weather in Spain during the last three months of 1998. The Gas Natural Group distributes gas to more than 4,750,000 residential-commercial customers, and showed an increase of 635,000 during 1998: 255,000 of these in Spain, 56,000 in Argentina, and the remainder in Mexico, Colombia and Brazil. Demand from the industrial sector during the final quarter of 1998 rose by 16.5% in comparison to year earlier figures, to reach 28,383 million thermies. The growth of this area originates mainly from the good economic situation in Spain and expansion of the Gas Natural grid to cover wider territory. In Latin America, natural gas contributed 317 million pesetas during this year’s fourth quarter, which was 67.5% more than in 1997. However, the economic difficulties being suffered by Mexico during the period were not entirely offset by growing income from the other countries in the region. The incorporation of 45.3% of GASA raised the number of Astra’s residential customers in Buenos Aires to 814,000, and these consumed 911 million thermies during the last quarter of 1998. In the same period, Astra sold 4,445 million thermies to the industrial and power station sectors.
Results for the year Repsol’s gas and electricity activity registered an operating income of 77,896 million pesetas for the whole of 1998, in comparison to 50,321 million pesetas in 1997. The contribution from Latin America was 45% up on the previous year, at 8,693 million pesetas. This improvement was the result of normal application of the price-setting formula and higher sales of LPG in Spain, together with higher natural gas sales to the residential/commercial and industrial sectors in Spain, and a rise in income from our Latin American operations.
Investments Quarterly investments in LPG amounted to 5,216 million pesetas, and in natural gas and electricity, to 31,579 million pesetas. Overall, 128,635 million pesetas were invested in the gas sector during 1998, mainly to extend the distribution and transmission network for natural gas, develop LPG marketing activities, and projects for the integration of the gas-electricity chain in Spain and Latin America.
2.5.- Corporate and others This caption showed an operating expense for the quarter of 383 million pesetas, as opposed to a negative 533 million pesetas a year earlier, and basically reflects the expenses incurred by Repsol’s corporate headquarters, which were not accountable to group companies. For the whole of 1998 there was an operating loss of 2,082 million pesetas, in comparison to 1,321 million in 1997. 3.- FINANCIAL RESULT Net financial expenses for the last quarter of the year were 7,626 million pesetas, and were similar to those registered in the fourth quarter of 1997 (7,770 million pesetas). This denotes stability in the average debt volume for both periods. Total financial expenses for last year were 28,350 million pesetas, and showed a 13.5% rise over the 1997 figure. These financial expenses were the result of two contrasting items. For the one part, there was a general fall in interest rates and, for the other, there was the effect of a higher volume of debt in our Latin American affiliates and the incorporation of new companies. As this debt was not guaranteed by Repsol, it was subject to ever higher interest rate differentials, especially during the second half of 1998, and this effect was registered when financial statements were consolidated. 4.- EQUITY ON EARNINGS OF UNCONSOLIDATED AFFILIATES A loss of 305 million pesetas was reported for the final quarter of 1998 from the companies in which Repsol has a minority stake. Net income for the whole year was 206 million pesetas, as opposed to 2,232 million pesetas in 1997. This drop was mainly due to refining losses resulting from "hedging" contracts set up by some Latin American affiliates in which Repsol holds a minority interest. As we have already noted previously, these already existed when we made our acquisitions in Latin America. 5.- GOODWILL AMORTIZATION The change in accounting law, introduced as of January 1998 onwards, whereby goodwill amortisation is carried out over a period of 20 years instead of the 10 years formerly in practice, led to a positive figure under this caption of 1,372 million pesetas for the final quarter of 1998. Therefore, goodwill amortisation registered for the whole year was 3,500 million pesetas lower than it would otherwise have been under the old system. Goodwill amortisation for 1998 was 4,022 million pesetas, in comparison with 3,796 million pesetas a year earlier. 6.- EXTRAORDINARY ITEMS 1998 produced a net extraordinary loss of 8,922 million pesetas. An amount of 21,158 million pesetas was obtained from capital gains on divestments, and the application of liabilities and subsidies. 30 billion pesetas were set aside as provisions and write-offs, including 6,883 million in indemnities and provisions for future manpower restructuring programmes; a provision of 5 billion for fixed asset depreciation relating to hydrocarbon reserves; 2,867 million for the up-dating of internal pension funds; and an extraordinary amount of 9,997 million pesetas to cover future contingencies. It is worth mentioning that approximately 4,200 million pesetas have been set aside for early retirement programmes in 1999, affecting nearly 300 employees. 7.- MINORITY INTERESTS Income attributable to minority shareholders for the financial year of 1998 was 23,107 million pesetas, as against 23,600 million pesetas in 1997. Although the two balances are similar, last year’s figure was the result of two effects which counterbalanced each other. One of these was a 6,500 million peseta improvement in income as a result of including a whole year of the dividend on preference shares (as against only two-and-a-half months the year before). The other was a 4,633 million peseta reduction in income from Astra minority shareholders, because Repsol increased its stake in the former during 1998, and because of lower income from Astra during last year. 8.- TAXES Tax paid for the financial year of 1998 was 66,134 million pesetas. This was a tax rate for the year of 28.17%, and was slightly lower than that for 1997. This lower tax rate was mainly the result of a reorganisation between companies of Group interests abroad and the application of deductions on export activities. 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-DECEMBER - 1997 AND 1998 (Million pesetas) (Non-audited figures)
OPERATING HIGHLIGHTS
(*) All figures in barrels are
obtained by applying a fixed ratio of 1 tonne = 7,3 barrels
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