In the first nine months of 2020, Repsol posted an adjusted net income — which specifically measures the performance of the businesses — of €196 million. This result was achieved in a context of extraordinary difficulty that continued to be marked by the global health crisis, the drastic drop in crude and gas prices, and the collapse of demand.
In the third quarter, the company managed to improve adjusted net income by €265 million from the second quarter of the year, supported by its integrated business model, flexibility, and resilience, all of which enabled it to achieve a positive performance in a very adverse COVID-19 scenario that has accentuated the world recession. The positive cash flow registered in this period also demonstrated the effectiveness of the measures adopted in the Resilience Plan that were activated in March of this year.
In a context marked by the global pandemic, Repsol prioritized the continuity of its activity over the usual criteria of profitability, taking into consideration the essential nature of its products and services for society, to help it address the crisis. The company is keeping its facilities in operation and guaranteeing essential supplies of energy and raw materials needed for manufacturing a large part of the products used in the health sector, from the most basic and commonly-used to the more complex and advanced.
The situation generated by COVID-19 sharply impacted crude and gas prices, which fell steeply in the first months of 2020, especially in the second quarter when worldwide demand suffered its worst collapse in history. Between January and September, Brent crude fell by 36% and that of WTI by 33%, with average prices around 40 dollars a barrel for both indicators. For its part, the Henry Hub gas price fell by an average of 30%, with the average price in the period plunging to $1.9 per Mbtu.
The value of Repsol’s inventories was negatively impacted by the fall in the prices of reference raw materials, a total of €-1.047 billion during the period. Furthermore, in light of this context and in an exercise of financial prudence, the company revised its price deck for future crude and gas prices and adjusted downward the value of its Upstream assets, which is reflected in the specific items’ result of €-1.726 billion. All of this resulted in a net income for the first nine months of 2020 of €-2.578 billion.
Josu Jon Imaz: “Our strong cash flow generation in the period demonstrates the effectiveness of our Resilience Plan. We have been able to achieve a positive operating cash flow in all businesses, totalling €2.122 billion in the first nine months of the year. This shows our robustness even in an extremely complex scenario of depressed raw material prices and unusually low demand.”
Repsol activated its Resilience Plan on March 25, in the face of the drastic drop in raw material prices and in demand caused by the coronavirus. The Plan establishes a series of measures that are proving to be effective in bolstering cash flow and strengthening the balance sheet. The measures are also reflected in a gradual reduction in net debt as well as operating costs and investments.
After good progress in achieving the objectives set out in the Resilience Plan, at the end of the third quarter, the company has revised the objectives for the year. It has, thus, raised its estimate of a reduction in operating costs to €500 million, the reduction in investments to €1.2 billion, and a working capital optimization of nearly €700 million. All this, with regard to the metrics proposed at the beginning of the year.
Repsol is meeting the targets of this Plan and, at the close of the third quarter, had already reduced operating costs by more than €350 million and optimized working capital by more than €400 million.
The Resilience Plan also establishes that the Group’s net debt will not increase in 2020. The measures adopted are contributing very positively in this sense. At the close of the third quarter, net debt was reduced by €882 million with respect to the close of last year, to €3.338 billion.
To date this year, Repsol has reinforced its financial position through five bond issues totalling €3.850 billion, of which €1.5 billion correspond to perpetual subordinated bonds that strengthen the Group’s equity as well as its liquidity. Financial markets have given a vote of confidence to the company with demand that significantly exceeded the offer in all these issuances. The company also increased its pledged and unused credit lines by €1.605 billion.
Liquidity stood at €9.099 billion at the end of September. This covers the short-term maturities 3.43 times, a figure that is also higher than the 2.43 times of the previous quarter.
This document contains information and statements or claims that represent estimates or future projections regarding Repsol. These estimates or projections may include statements regarding current plans, objectives and expectations of Repsol and its management, including statements related to trends that affect Repsol’s financial situation, financial ratios, operating results, businesses, strategy, geographic concentration, production volumes and reserves, capital expenditures, costs savings, investments and dividend policies. These estimates or projections may also include assumptions about future conditions of an economic or any other nature, such as future crude oil prices or other prices, refining margins or marketing, or exchange rates. The estimates or future projections are generally identified by the use of terms like “expects”, “anticipates”, “predicts”, “believes”, “estimates”, “assesses” and similar expressions. These statements are not guarantees of future performance, prices, margins, exchange rates or other events, and they are subject to significant risks, uncertainties, changes and other factors that may be beyond Repsol’s control or difficult to foresee. Such risks and uncertainties include the factors and circumstances identified in the filings made by Repsol and its subsidiaries with the Comisión Nacional del Mercado de Valores (CNMV) in Spain and all other supervisory authorities of markets where the securities issued by Repsol and/or its subsidiaries are traded.
Except to the extent that it is required to do so by applicable law, Repsol undertakes no obligation, even when new information is published or in response to new developments, to publicly update or revise any forward-looking statements.
Some of the resources cited do not, as yet, constitute proven reserves and will be recognized as such when they meet the formal criteria established by the “SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System” (SPE-PRMS) (SPE – Society of Petroleum Engineers).
In October 2015, the European Securities Markets Authority (ESMA) published its Guidelines on Alternative Performance Measures (APMs). The guidelines apply to regulated information published on or after 3 July 2016. The information and breakdowns relative to the APMs used in this press release are updated quarterly on the Repsol website.
This document does not constitute an offer or invitation to purchase or subscribe shares, in accordance with the provisions of Royal Legislative Decree 4/2015, of 23 October, approving the recast text of the Spanish Securities Market Law and its implementing regulations. Likewise, this document does not constitute an offer to purchase, sell, or exchange, or a request for an offer of purchase, sale or exchange of securities in any other jurisdiction.
The information contained in the document has not been verified or reviewed by Repsol’s External Auditors.