CEPSA Group reports €236.2 million accumulated net income in first 9 months of 2013, down 55% YoY

• Dwindling refining margins and the slump in domestic consumer demand negatively impacted results in the third quarter.
• Capital expenditures in January-September 2013 amounted to €686 million.

Madrid, Spain, 21-11-2013 — /EuropaWire/ — Accumulated net income for the CEPSA Group at September 30, 2013, on a clean current cost of supplies (CCS) basis which calculates inventory valuation at replacement cost and excludes special items, totaled €295.5 million, slipping 36% (-€166.5 million) year-on-year.

The key factors underlying weaker earnings performance across all of the Company’s segments were:

• Tighter refining margins and the 5% fall in motor fuel demand, hindering Downstream (Refining & Marketing) results.
• Lower output and sales of crude oil, compounded by the 3% decline in the price of benchmark Brent crude, dragging down Upstream (Exploration & Production) earnings.
• Spain’s new regulations aimed at reforming the electricity sector, which adversely affected Gas & Powerresults compared to the same period last year.

Applying International Financial Reporting Standards (IFRS) which uses the weighted average cost method of accounting for valuing inventory, CEPSA’s net income in the first three quarters of 2013 stood at €236.2 million, evidencing a year-on-year variance of -55% (-€294.5 million), with -€128 million attributable to price fluctuations in crude and refined product inventories and one-time items.

Out of total net income in the period, earnings generated from business activities abroad, mainly E&P, Petrochemicals and fuel exports, accounted for 63% whereas the rest, 37%, were from domestic-based businesses.

Capital expenditures in January-September 2013 amounted to €686 million, up €150 million compared to the same period of 2012.  Out of the capital spending in the year, €261 million were allocated to E&P. Net financial debt was €1,467 million, with a debt-to-equity ratio of19%.

Regarding safety performance indicators and reflecting the Company’s consistent efforts to make safety a priority goal, the accident frequency rate (number of total recordable lost workday injuries per one million hours worked) fell to all-time lows of 2.3.

Net Income (Clean CCS) and Significant Events by Business Segments:

Exploration & Production

Net income from upstream operations in the first three quarters of 2013 stood at €128.1 million, sliding 25% (-€43.4 million) from the figure posted in the same period of 2012.

The decline in earnings was driven by lower Brent crude oil prices which triggered a 3% drop in realized crude prices; the fall in CEPSA’s working interest production, averaging 89 kboe/d; and a weaker US dollar against the euro. These effects were partly offset by the decrease in exploration expenses.

In the nine-month period, a noteworthy development was the extension of the RKF license in Algeria, awaiting final regulatory approval, in addition to CEPSA’s other ongoing E&P activities in the region. In May 2013, CEPSA announced that it was awarded two offshore blocks in Brazil. The Company is also continuing its successful exploration and production operations in Colombia.

Refining & Marketing

Downstream net income at September 30, 2013 amounted to €61.1 million, 63% lower than the €169.2 million posted in the first nine months of 2012.

The Refining area continued to be challenged by a bleak environment in Europe characterized by excess refining capacity. A more expensive crude slate along with sluggish consumer demand for oil products on account of the economic crisis and a growing supply overhang all weighed heavily on refining margins, hampering the Group’s results.

This downturn in refining margins prompted a reduction in crude runs and the decision to temporarily halt operations at CEPSA’s Tenerife Refinery as of July 20^th, due to poor profitability*.

As a highlight in the Marketing area, CEPSA reached an agreement with the supermarket chain Carrefour to deliver better offers, discounts and savings to their customers when purchasing products sold by both brands and to open Carrefour Express pilot stores at CEPSA service stations. This initiative is expected to boost traffic, purchases and customer services at the nearly 1,500 gas stations in CEPSA’s network and the 400 Carrefour retail sites nationwide.

Petrochemicals

Net income for the first three quarters of the year stood at €86.7 million, down 8% from the figure of €94.8 million recorded a year earlier.

Better earnings from the Phenol/Acetone business line, driven by a 6% rise in sales, were not able to offset lower sales margins in LAB and the drop in solvent exports.

CEPSA continued to make progress on the construction of the Phenol/Acetone plant in Shanghai, China, representing the Company’s first-ever investment in Asia, an area where it hopes to gain a strong foothold over the next few years to sell its products on local markets. The facility is slated to come on-line in the second half of 2014.

Gas & Power

Net income from the Gas & Power business in the first nine months of 2013 totaled €13.1 million, down 50% (-€13.3 million) from the same period of 2012.

The enactment of new regulations to reform the electricity sector in Spain, which became effective in the year, and low electricity pool prices, both adversely affected the Company’s cogeneration and combined cycle power plants, where production fell 37% from the previous year. These circumstances led to a negative impact of €25 million on earnings as compared to the same period of 2012.

In July 2013, CEPSA acquired a further 7% stake in MEDGAZ from GdF Suez, exercising its right of first refusal provided for in the Bylaws of MEDGAZ, S.A. As a result of this transaction, and in addition to the stakes purchased previously this year from Endesa and Iberdrola, CEPSA currently holds 42% of the consortium’s share capital. This increased shareholding in MEDGAZ has had a positive effect on the Company’s consolidated earnings, contributing €9 million more versus the same period last year.

CEPSA – Corporate Communications and Institutional Relations Division
comunicacion@cepsa.com
Tel: (34) 91 337 62 02
www.cepsa.com

*The Tenerife Refinery’s crude processing activities will be restarted on November 25, 2013, after having been offline since July 20th on account of poor margins. The reason for resuming refining activity, a process that is expected to take between 3-4 weeks, is to reduce currently high crude oil inventories and their associated financial costs.