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Petrom 2004 Annual Results

  • Strong taxable profit of ROL 6,625 bn
  • Strong balance sheet due to equity, from the capital increase
  • Strong net cash flow from operating activities, increased to ROL 18,559 bn
  • Company registers net loss of ROL 9,737 bn
  • Losses due to first time full utilisation of geological quota and reflection of previous years highlighted matters in the accounts

Petrom, South Eastern Europe's largest producer of oil and gas, has published its financial statements dated December 31, 2004. The results showed an operating loss of ROL 5,812 bn, a loss before tax of ROL 8,240 bn, while the net loss from operations amounted to ROL 9,737 bn (EUR 246 m). The taxable profit in 2004 remained strong at ROL 6,625 bn (EUR167 m) compared to 2003 at ROL 7,626 bn. However due to the lack of distributable profit a dividend will not be proposed for 2004. Company sales in 2004 amounted to ROL 86,879 bn. Cash flow of the company rose to ROL 37,184 bn (2003: ROL -1,865 bn), reflecting the cash inflow from the capital increase at the end of the year 2004. Petrom CEO Gheorghe Constantinescu: "Petrom has had an eventful year 2004. We successfully completed the largest privatisation ever undertaken in Romania. The registered losses 2004 are due to the first time full utilisation of the geological quota and also consequently reflecting in the accounts the previously addressed matters of emphasis. Petrom, due to the capital increase in 2004 has a strong cash position, ready to invest and move the company forward."
The financial statements 2004 were prepared in accordance with the Romanian statutory accounting requirements (RAS) Due to the differences between Romanian and International Accounting Standards (IFRS), the financial statements do not fully comply with IFRS.

Towards the end of 2004 the management revisited the application of accounting standards with respect to impairment, employee benefits and accounting for inventories, keeping in mind the changes faced by the company in light of changing market dynamics.
Additionally the management also assessed the implication of matters of emphasis raised with regards to prior year financial statements and made the necessary adjustments in the accounts.

The management decided that restatement of comparative financial statements is not desirable due to unnecessary costs and delay in the financial reporting process. As a result restatements relating to 2003 were booked against the retained earnings.

At the end of 2004, the company created additional provisions - for environment liabilities, employee benefits, impairment and inventories - in order to be prepared for the compliance with the International Financial Reporting Standards. These standards will be mandatory starting with 2006, but they will use 2004 and 2005 as a basis for their application. The preparation of 2004 financials was done in accordance with the provisions of OMF 94/2001.

Petrom's losses for 2004 are thus a consequence of properly assessing and recording the effects of environmental related liabilities of ROL 2,850 bn (EUR 72 m) and litigation liability of ROL 839 bn (EUR 21 m) and provisions against current assets of ROL 3,551 bn (EUR 90 m). Additionally, the company also recorded losses due to missing inventories kept at third parties, including excise and VAT of ROL 1,212 bn (EUR 30 m).

Financial highlights, ROL bn

Year ended December 31
  2004 2003
Sales 86.879 71.346
EBITDA 1.136 10.107
EBIT (5.812) 4.579
Net (loss)/profit (9.737) 1.440
Fixed Assets 95.894 76.928
Current Assets 60.237 39.986
Net cash flow from operating activities including change working capital 18.559 12.640

In 2004, in spite of a negative profit before income tax, Petrom had a taxable position due to the significant amount of non-deductible expenses, where the provisions account for the most part. Company sales increased by around 22% compared to 2003, mainly due to an increase of the sales of the Refining and Petrochemicals sector. Total expenses have increased by 42% mainly due to the operating expenses. The appreciation of the local currency ROL, determined a significant rise of the financial expenses, accounting for 85% of total financial expenses and in comparison with 2003, the expenses from foreign exchange differences increased almost 4 times. Personnel expenses decreased by 1.3% as a result of the restructuring process carried out by the company. Other operating expenses include (a) Expenses with third party services (higher by 41% in 2004, with main influence from E&P), (b) Other taxes, duties (slight increase of 9%) and (c) other operating expenses (i.e. donations, assets disposed). The last category mainly reflects in 2003 the value of the product transfer between Petrom's business units (crude, gas, petroleum products). In 2004 those expenses were reclassified to raw materials and purchases of goods for resale.

Exploration and Production
In 2004 revenues of the Exploration and Production sector decreased by 2.1%, which is in line with the decrease in quantities of crude oil sold to third parties in 2004 compared to 2003. Operating expenses increased by 172%, mainly due to an increase of third party services (43%), combined with higher level of the geological quota due to the full utilisation (by 120%). The third party services increased as a result of the second step of the restructuring program in E&P, i.e. the spin off of work over activities in some of the E&P branches. The rise of the geological quota is the result of the higher amounts of crude transferred to Petrom's branches, generating a better realization of revenues, the basis for the calculation of the quota and the full utilisation available to the company.

Marketing
In the Marketing sector, EBIT recorded negative values due to a more rapid increase of the expenses in comparison with the revenues. Revenues of the Marketing sector increased by around 10.5%, mainly due to an increase of the merchandise sales, while expenses related thereto increased by 13.5% and a higher value of the depreciation.

Refining and Petrochemicals
Despite the fact that the revenues of the Refining and Petrochemicals sector increased by 40.4% as a result of a significant increase of products sales (by 40.5%), and expenses related thereto increased by 39.5 % the EBIT was still negative.

Assets and Liabilities
The net debt of the company recorded a negative value in 2004, as the cash amount exceeded the short and long term liabilities of the company, resulting in a net cash position. The liquidity ratios recorded very high values in 2004 in comparison with 2003, due to the large amount of cash owned by the company as a result of the share capital.

The total assets increased by 33%, mainly as a result of an increase in financial assets and a very significant increase of the cash from ROL 3,992 bn to ROL 41,176 bn, following the capital increase. In 2004 compared to 2003, the total liabilities increased by 60% mainly due to a strong increase of the provisions in the amount of ROL 39,434 bn.
The current liabilities decreased mainly due to an important reduction of other liabilities, including Fiscal and social security liabilities (by 63%), mainly as a result of the GO no 15/2004 referring to the cancellation of Petrom debts to state budget (ROL 9,525 bn) and also to the decrease of trade payables from ROL 7,001 bn to ROL 4,443 bn, (elimination of delayed payment period was targeted in the second part of the year). In 2004, payables in more than one year amounted to ROL 5,304 bn, representing a decrease by 30% in comparison with 2003 from ROL 7,529 bn. The main causes of the reduction are: the conversion of the EBRD loan into shares (USD 73 m), the appreciation of the ROL towards USD and EUR, as well as the prepayment of EBRD loan (USD 29.2 m).

Total shareholders' equity increased by 19% from ROL 78,819 bn in 2003 to ROL 93,921 bn in 2004 due to the share capital increase resulting from the privatisation process (from ROL 37,735 to ROL 56,001 bn).

Cash flows
The cash flows of the company showed a significant improvement compared to prior year (from ROL -1,865 bn to ROL 37,184 bn) reflecting the cash inflow from the capital increase at the end of the year 2004. The Cash Flow from Operations was by 47% higher, while the Cash Flows to Investing activities decreased by 16%. The net cash flow from operating activities increased with ROL 5,920 bn, as a result of both the non-cash adjustments and the changes in net working capital.

2005 Budget

The budgeted values of the key indicators for 2005 are as follows:

Financial highlights, ROL bn

2005
Sales 88.919
EBITDA 18.164
EBIT 10.926

Net (loss)/profit

9.737

Net cash flow from operating activities incl changes in working capital

20.620
Capex 20.233

Petrom estimates for 2005 an increase of its turnover, mainly as a result of higher quantities of products sold.

In 2005, Petrom intends to significantly increase the investments volume in comparison with the previous years to ROL 20,233 bn (EUR 530m), in order to improve its efficiency and to obtain products in line with the European Union requirements.

1st Quarter Financial Results

Petrom will announce its 1st quarter results on 25th of May.