Cepsa generates Clean CCS EBITDA of €453 million in the first quarter of 2020

11 May 2020

    • Cepsa's Clean CCS EBITDA in Q1 2020 is 3% lower than Q1 2019, driven by lower crude oil price and the initial impact on refining margins and demand of Covid-19
    • Strong performance in Marketing and Chemicals partially offsets the lower earnings in the other business units
    • Refining and marketing operations continued regularly, despite Covid-19 disruptions, ensuring energy supply to the Spanish economy 
    • Launching several resiliency initiatives to protect cash flow generation this year
    • Strong balance sheet and liquidity; Fitch and Moody's re-affirm Cepsa's investment grade rating while Standard & Poor's leaves it unchanged

"This year’s first quarter results clearly demonstrate the reality of the marketplace for the coming months.We are experiencing a crisis on two fronts, firstly the oil supply where prices have fallen drastically and secondly COVID-19 that has triggered a substantial drop in demand towards the end of the quarter.

We have instigated a broad range of initiatives to maintain the solidity of the company in this new situation. Our integrated business model operating throughout the whole of the oil value chain and the demonstrated ability of our professionals, leave us well positioned to rapidly adapt to this very challenging environment."

Philippe Boisseau, CEO of Cepsa.

In Q1 2020, Cepsa registered Clean CCS EBITDA of €453 million, 3% lower than Q1 2019. The reduction in Clean CCS EBITDA is mainly driven by the decline in crude oil prices and the softening in the demand for fuels that comes from the lower international trade. The weak performance in Exploration & Production and Refining is partially compensated by the strong performance of Marketing and Chemicals.

In the first quarter of 2020, Brent price decreased by 20% relative to the first quarter of 2019 (from $63.2/barrel to $50.3/barrel), due to the combined effect of the sharp contraction in demand and the increase in supply triggered by the absence of agreement by the OPEC member countries and Russia to adjust production to current levels of demand.

Clean CCS EBITDA of the Exploration & Production business unit for the first quarter of 2020 was €165 million, compared to €216 million in the first quarter of 2019. The decrease was mainly due to the lower price of crude oil and lower sales.

Clean CCS EBITDA for the Refining business unit in Q1 2020 was €95 million, compared to €113 million in the first quarter of 2019. Market refining margins have remained low, with Cepsa's main refining margin indicator (VAR) averaging $4.8/b. This figure although slightly above the one registered in the same period of the previous year, was penalized by lower contribution from cogeneration plants and lower export premiums and trade margins than previous year.

The Marketing business unit registered a strong performance in the first quarter of 2020, recording a Clean CCS EBITDA of €124 million, 33% higher than the same period in 2019. Results were mainly driven by higher margins than in the previous year.

The Chemicals business unit recorded a Clean CCS EBITDA of €79 million in Q1 2020, 33% higher than in Q1 2019. Results were mainly driven by the strong performance of the LAB segment (raw material for detergents, currently in high demand given the Covid-19 situation) and the recovery of margins in the Phenol-Acetone line (raw material for plastics and fibers).

Cepsa's Clean CCS Net Income for the first quarter of 2020 was €85 million, compared to €124 million for the same period in 2019.

Net income for the financial year to date, under International Financial Reporting Standards (IFRS), was negative by €556 million, compared to gains of €151 million in the first quarter of 2019. These results include both the write off due to lower realizable value of inventories of crude oil and oil products, with an impact after taxes of €350 million, and a net impairment of €188 million on Exploration and Production assets, mainly caused by the fall in crude oil prices in this quarter (both Spot and Forward prices).

Impact of COVID-19 on Cepsa's business and measures taken

The current economic situation has no precedent in recent times and affects all companies in all sectors. Companies in the energy industry are affected by the significant drop in crude prices and the reduction of demand for refined products that comes from the lower international trade and domestic lockdown policies connected to COVID-19.

Cepsa, like every other company in the energy industry, is affected by these market phenomena.  The Spanish market is particularly impacted, with a significant drop in energy consumption due to the lockdown.  However, we believe that Cepsa is particularly well positioned to withstand what we believe is a temporary market disruption, thanks to our Company's favorable cost structure, integrated business model, and the actions taken by our management team. Cepsa, as an essential player within the Spanish energy system, is working closely with the local and central government to guarantee the continued supply of energy to the country and support society in general and, very especially, regarding the communities closest to our activity.

To weather the crisis, Cepsa is taking a number of actions across each of its businesses and functional areas.

      • First and foremost, to ensure the health and safety of all of its employees, suppliers and customers, by implementing prevention measures to help halt the spread of COVID-19. Thus, for example, all possible work is done remotely: since the first days of the crisis, more than 3,500 employees have been doing it concurrently.
      • In order to coordinate the company's efforts in respect of the current situation, several committees have been established under the umbrella and oversight of a global Crisis Committee. These committees address the company’s response in different areas including personnel, facilities, operations and processes, and are in charge of identifying and analyzing different scenarios, whilst searching for formulas to address the present situation and subsequent recovery.
      • From an operational stand-point, Cepsa is committed to continuing with its operations to guarantee the supply of energy products and services to its customers and society at large, which is crucial in the current emergency situation, observing all instructions and guidelines issued by public authorities in each jurisdiction in which we operates. Mobility has been restricted to the bare minimum and virtually all non-essential commerce and industry has remained closed until now. 
      • Cepsa has also put in place several resiliency initiatives to protect the company’s cash flow generation. These initiatives include:
    1. The reduction of fixed operating expenses across all business units and operations, with the objective of achieving savings of €100 million in 2020 with respect to 2019.
    2. A reduction in the 2020 capital investment program of approximately 20%, equivalent to €210 million, compared to the figures planned before the onset of both crises. The integrated nature of its business and presence across the whole energy value chain provides Cepsa with great flexibility when it comes to investment decisions, being able to adjust or defer capital investments if required, in accordance with the economic situation
    3. Strict working capital management.
    4. Specific actions in our network of Service Stations: following the criteria of the Government regarding essential services, Cepsa offers flexibility in resizing its workforce. In order to achieve this flexibility, temporary lay-offs of staff are necessary. 
    5. Among these measures, the Board of Directors has prudently agreed to delay decision-making on the distribution of the interim dividend until such time as there is more visibility on the evolution of the crisis and the real impact on our markets. 

At the same time, the company has launched through its Foundation, another series of assistance-type actions to help vulnerable groups during this pandemic.

To download the full press release click here.

Continue reading 1 min