- Feb 07, 2019
- Business Wire
Total’s Board of Directors met on February 6, 2019, and approved the Group’s 2018 accounts. Commenting on the results, Chairman and CEO Patrick Pouyanné said:
“Benefiting from the rise of oil prices to $71/b on average in 2018 compared to $54/b in 2017, while remaining volatile, the Group reported adjusted net income of $13.6 billion in 2018, an increase of 28%, a return on average capital employed close to 12%, the highest among the majors, and a pre-dividend breakeven below 30 $/b.
These excellent results reflect the strong growth of more than 8% for the Group’s hydrocarbon production, which reached a record level of 2.8 Mboe/d in 2018 and led to a 71% increase in Exploration & Production’s adjusted net operating income. The year was highlighted by the start-up of Ichthys in Australia, Yamal LNG in Russia, deep-water projects Kaombo North in Angola and Egina in Nigeria, as well as the counter-cyclical acquisitions of Maersk Oil and new offshore licenses in the UAE.
In addition, the Group maintained its financial discipline. Net investments were $15.6 billion in 2018, in line with its objective, and $4.2 billion in cost reduction was achieved. Debt-adjusted cash flow (DACF) was $26 billion in 2018, driven largely by the 31% increase in cash flow from Exploration & Production. The Group’s balance sheet was solid with a gearing ratio of 15.5%, below the target limit of 20%.
The Group is continuing to expand along the value chain of integrated gas and low-carbon electricity. With its acquisition of Engie’s LNG assets Total is the second largest publicly-traded player in the LNG business, and its position will be strengthened with the 2019 start-up of the Cameron LNG project. In addition, the Group accelerated its growth in low-carbon electricity, notably with the acquisition of Direct Energie.
In an environment of lower European refining margins, the Downstream relied on the availability of its units and the diversity of its portfolio to generate $6.5 billion of cash flow and profitability of more than 25%. The Group is continuing to implement its strategy for growth in petrochemicals by launching projects in the US, Saudi Arabia, South Korea and Algeria. Total has also continued to expand Marketing & Services in fast-growing areas, notably in Mexico, Brazil and Angola.
Conforming to the shareholder return policy announced in February 2018, the Group increased the 2018 dividend by 3.2% and bought back $1.5 billion of its shares in 2018. Given the solid financial position, which is benefiting from growing cash flow, the Board of Directors confirmed the shareholder return policy for 2019. It plans to increase the interim dividend by 3.1% to 0.66 euros per share, end the scrip dividend option following the general assembly meeting, and continue the share buyback policy in the amount of $1.5 billion in a 60 $/b environment.”
* Average €-$ exchange rate: 1.1414 in the fourth quarter 2018 and 1.1810 in 2018.
Highlights since the beginning of the fourth quarter 201811
> Environment – liquids and gas price realizations*
* Consolidated subsidiaries, excluding fixed margins.
Hydrocarbon production was 2,876 thousand barrels of oil equivalent per day (kboe/d) in the fourth quarter 2018, an increase of 10% compared to last year, due to:
In 2018, hydrocarbon production was 2,775 kboe/d, an increase of more than 8% compared to last year, due to:
* Details of adjustment items are shown in the business segment information annex to financial statements.
** Tax on adjusted net operating income / (adjusted net operating income - income from equity affiliates - dividends received from investments - impairment of goodwill + tax on adjusted net operating income).
Exploration & Production adjusted net operating income was:
Operating cash flow before working capital changes was 4.4 B$ in the fourth quarter 2018, an increase of 3% compared to the same quarter last year, partially offset by the decrease in oil prices in Canada, and 19.4 B$ in 2018, an increase of 31% for the reasons above. Exploration-Production generated 10.2 B$ of operating cash flow before working capital changes less organic investments in 2018.
The effective tax rate increased from 41.2% in 2017 to 46.5% in 2018, in line with the increase in oil prices.
Technical costs for the consolidated subsidiaries, calculated in accordance with ASC93210 standards continued decreasing to 18.9 $/boe in 2018, including 5.7 $/boe of Opex, compared to 19.5 $/boe in 2017.
* Detail of adjustment items shown in the business segment information annex to financial statements.
Adjusted net operating income for the Gas, Renewables & Power segment was 756 M$ in 2018, notably thanks to the good performance of LNG and gas/power trading activities. The acquisitions of Direct Energie and the LNG business of Engie account for the increase in investments to 3.5 B$ in 2018. The increase in working capital related to the consolidation of the acquisitions of Direct Energie and the LNG business of Engie was mainly responsible for the negative cash flow from operations in 2018.
* Includes share of TotalErg, and African refineries reported in the Marketing & Services segment.
** Based on distillation capacity at the beginning of the year.
* Detail of adjustment items shown in the business segment information annex to financial statements.
The European Refining Margin Indicator (ERMI) for the Group was 29.1 $/t in the fourth quarter 2018, a decrease of 18% compared to the fourth quarter 2017 and by 21% to 32.3 $/t for the full-year 2018, mainly due to rising crude oil prices. The petrochemicals environment remained favorable in the fourth quarter; although margins in Europe were lower than last year, affected by the higher price of raw materials.
In this context, Refining & Chemicals adjusted net operating income was resilient:
* Excludes trading and bulk refining sales, includes share of TotalErg.
Petroleum product sales increased by 1% in 2018 compared to 2017. The sale of TotalErg in Italy was offset by higher sales in the rest of the world.
* Detail of adjustment items shown in the business segment information annex to financial statements.
Marketing & Services adjusted net operating income was stable in 2018 at 1,652 M$.
> Adjusted net operating income from business segments
Thanks notably to the strong performance by Exploration & Production, adjusted net operating income from the business segments was:
In line with the contribution from the segments, adjusted net income was:
Adjusted net income excludes the after-tax inventory effect, special items and the impact of changes in fair value11.
> Adjusted fully-diluted earnings per share and share buyback
In the context of the shareholder return policy announced in February 2018, the Group has bought back shares since then, including:
Return on equity rose to 12.2% for the twelve months ended December 31, 2018, an increase compared to the twelve months ended December 31, 2017.
Return on average capital employed was 11.8% for the twelve months ended December 31, 2018, an increase compared to the twelve months ended December 31, 2017.
Net income for TOTAL S.A., the parent company, was 5,485 M€ in 2018, compared to 6,634 M€ in 2017.
* Sensitivities are revised once per year upon publication of the previous year’s fourth quarter results. Sensitivities are estimates based on assumptions about the Group’s portfolio in 2018. Actual results could vary significantly from estimates based on the application of these sensitivities. The impact of the $-€ sensitivity on adjusted net operating income is essentially attributable to Refining & Chemicals.
Since the start of 2019, Brent has traded around $60/b in a context of oil supply and demand near the record-high level of 100 Mb/d. In a volatile environment, the Group is pursuing its strategy for integrated growth along the oil, gas and low-carbon electricity chains.
The Group has clear visibility on its 2019 cash flow, supported by the strong contribution of project start-ups in 2018 and recent acquisitions.
The Group maintains financial discipline to reduce its breakeven to remain profitable across a broader range of environments. In particular, it is targeting cost reductions of $4.7 billion, projected net investments of $15-16 billion in 2019 and an Opex target of 5.5 $/boe.
In Exploration & Production, production is expected to grow by more than 9% in 2019, thanks to the ramp-ups of Kaombo North, Egina and Ichthys plus the start-ups of Iara 1 in Brazil, Kaombo South in Angola, Culzean in the UK and Johan Sverdrup in Norway. Determined to take advantage of the favorable cost environment, the Group plans to launch projects in 2019, notably including Mero 2 in Brazil, Tilenga and Kingfisher in Uganda and Arctic LNG 2 in Russia.
The Group is pursuing its strategy for profitable growth along the integrated gas and low-carbon electricity chains. Effective 2019, the Group will report the new iGRP segment (integrated Gas, Renewables & Power) which combines the Gas, Renewables & Power segment with the upstream gas and LNG activities currently reported within the Exploration & Production segment.
Affected by an abundance of available products, European refining margins have been very volatile since the start of the year. In 2019, the Downstream will continue to rely on its diversified portfolio, notably its integrated Refining & Chemical platforms in the U.S. and Asia-Middle East as well as its non-cyclical Marketing & Services segment.
In this context, the Group is continuing to implement its shareholder return policy announced in February 2018, by increasing the dividend in 2019 by 3.1%, in line with the objective to increase the dividend by 10% over the 2018-20 period. Taking into account its strong financial position, the Group will eliminate the scrip dividend option from June 2019. Within the framework of its program to buy back $5 billion of shares over the 2018-20 period, the Group expects to buy back $1.5 billion of its shares in 2019 in a 60 $/b Brent environment.
To listen to the presentation in English by CEO Patrick Pouyanne and CFO Patrick de La Chevardière today at 10:00 (London time) please log on to total.com or call +44 (0) 207 192 8338 in Europe or +1 646 741 3167 in the United States (code: 7198797). For a replay, please consult the website or call +44 (0) 333 300 9785 in Europe or +1 917 677 7532 in the United States (code: 7198797).
* Sales, Group share, excluding trading; 2017 data restated to reflect volume estimates for Bontang LNG in Indonesia based on the 2017 SEC coefficient.
> Downstream (Refining & Chemicals and Marketing & Services)
* At replacement cost (excluding after-tax inventory effect).
This press release presents the results for the full-year 2018 from the consolidated financial statements of TOTAL S.A. as of December 31, 2018 (unaudited). The audit procedures by the Statutory Auditors are underway. The notes to these consolidated financial statements (unaudited) are available on the TOTAL website total.com. This document does not constitute the Annual Financial Report (Rapport Financier annuel) within the meaning of article L. 451.1.2 of the French monetary and financial code (code monétaire et financier).
This document may contain forward-looking information on the Group (including objectives and trends), as well as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notably with respect to the financial condition, results of operations, business, strategy and plans of TOTAL. These data do not represent forecasts within the meaning of European Regulation No. 809/2004.
Such forward-looking information and statements included in this document are based on a number of economic data and assumptions made in a given economic, competitive and regulatory environment. They may prove to be inaccurate in the future, and are subject to a number of risk factors that could lead to a significant difference between actual results and those anticipated, the price of petroleum products, the ability to realize cost reductions and operating efficiencies without unduly disrupting business operations, changes in regulations including environmental and climate, currency fluctuations, as well as economic and political developments and changes in business conditions. Certain financial information is based on estimates particularly in the assessment of the recoverable value of assets and potential impairments of assets relating thereto.
Neither TOTAL nor any of its subsidiaries assumes any obligation to update publicly any forward-looking information or statement, objectives or trends contained in this document whether as a result of new information, future events or otherwise. Further information on factors, risks and uncertainties that could affect the Group’s business, financial condition, including its operating income and cash flow, reputation or outlook is provided in the most recent Registration Document, the French language version of which is filed by the Company with the French Autorité des Marchés Financiers and annual report on Form 20-F filed with the United States Securities and Exchange Commission (“SEC”).
Financial information by business segment is reported in accordance with the internal reporting system and shows internal segment information that is used to manage and measure the performance of TOTAL. In addition to IFRS measures, certain alternative performance indicators are presented, such as performance indicators excluding the adjustment items described below (adjusted operating income, adjusted net operating income, adjusted net income), return on equity (ROE), return on average capital employed (ROACE) and gearing ratio. These indicators are meant to facilitate the analysis of the financial performance of TOTAL and the comparison of income between periods. They allow investors to track the measures used internally to manage and measure the performance of the Group.
(i) Special items
Due to their unusual nature or particular significance, certain transactions qualified as "special items" are excluded from the business segment figures. In general, special items relate to transactions that are significant, infrequent or unusual. However, in certain instances, transactions such as restructuring costs or asset disposals, which are not considered to be representative of the normal course of business, may be qualified as special items although they may have occurred within prior years or are likely to occur again within the coming years.
(ii) Inventory valuation effect
The adjusted results of the Refining & Chemicals and Marketing & Services segments are presented according to the replacement cost method. This method is used to assess the segments’ performance and facilitate the comparability of the segments’ performance with those of its competitors.
In the replacement cost method, which approximates the LIFO (Last-In, First-Out) method, the variation of inventory values in the statement of income is, depending on the nature of the inventory, determined using either the month-end price differentials between one period and another or the average prices of the period rather than the historical value. The inventory valuation effect is the difference between the results according to the FIFO (First-In, First-Out) and the replacement cost.
(iii) Effect of changes in fair value
The effect of changes in fair value presented as an adjustment item reflects, for some transactions, differences between internal measures of performance used by TOTAL’s management and the accounting for these transactions under IFRS.
IFRS requires that trading inventories be recorded at their fair value using period-end spot prices. In order to best reflect the management of economic exposure through derivative transactions, internal indicators used to measure performance include valuations of trading inventories based on forward prices.
Furthermore, TOTAL, in its trading activities, enters into storage contracts, whose future effects are recorded at fair value in Group’s internal economic performance. IFRS precludes recognition of this fair value effect.
The adjusted results (adjusted operating income, adjusted net operating income, adjusted net income) are defined as replacement cost results, adjusted for special items, excluding the effect of changes in fair value.
Euro amounts presented for the fully adjusted-diluted earnings per share represent dollar amounts converted at the average euro-dollar (€-$) exchange rate for the applicable period and are not the result of financial statements prepared in euros.
Cautionary Note to U.S. Investors – The SEC permits oil and gas companies, in their filings with the SEC, to separately disclose proved, probable and possible reserves that a company has determined in accordance with SEC rules. We may use certain terms in this press release, such as “potential reserves” or “resources”, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 20-F, File N° 1-10888, available from us at 2, place Jean Millier – Arche Nord Coupole/Regnault - 92078 Paris-La Défense Cedex, France, or at our website total.com. You can also obtain this form from the SEC by calling 1-800-SEC-0330 or on the SEC’s website sec.gov.
1 Definitions on page 2
2 Adjusted results are defined as income using replacement cost, adjusted for special items, excluding the impact of changes for fair value; adjustment items are on page 11.
3 Tax on adjusted net operating income / (adjusted net operating income – income from equity affiliates – dividends received from investments – impairment of goodwill. + tax on adjusted net operating income).
4 In accordance with IFRS norms, adjusted fully-diluted earnings per share is calculated from the adjusted net income less the interest on the perpetual subordinated bond
5 Including acquisitions and increases in non-current loans.
6 Including divestments and reimbursements of non-current loans.
7 Net investments = gross investments - divestments - repayment of non-current loans - other operations with non-controlling interests.
8 Organic investments = net investments excluding acquisitions, asset sales and other operations with non-controlling interests.
9 Operating cash flow before working capital changes, previously referred to as adjusted cash flow from operations, is defined as cash flow from operating activities before changes in working capital at replacement cost. The inventory valuation effect is explained on page 14. The reconciliation table for different cash flow figures is on page 12.
10 DACF = debt adjusted cash flow, is defined as operating cash flow before working capital changes and financial charges.
11 Certain transactions referred to in the highlights are subject to approval by authorities or to other conditions as per the agreements.
12 FASB Accounting Standards Codification Topic 932, Extractive industries – Oil and Gas
13 Details shown on page 11
14 Details shown on page 11 and in the annex to the financial statements.
15 Net cash flow = operating cash flow before working capital changes - net investments (including other transactions with non-controlling interests).
Chart updated around the middle of the month following the end of each quarter
* European Refining Margin Indicator (ERMI) is an indicator intended to represent the margin after variable costs for a hypothetical complex refinery located around Rotterdam in Northern Europe that processes a mix of crude oil and other inputs commonly supplied to this region to produce and market the main refined products at prevailing prices in this region. The indicator margin may not be representative of the actual margins achieved by Total in any period because of Total’s particular refinery configurations, product mix effects or other company-specific operating conditions.
*** consolidated subsidiaries, excluding fixed margin contracts, including hydrocarbon production overlifting / underlifting position valued at market price.
Disclaimer: data is based on Total’s reporting, is not audited and is subject to change.
Fourth quarter and full-year 2018 consolidated accounts, IFRS
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